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MoviePass’ claims about its importance to AMC Theatres are grossly deceptive

MoviePass’ claims about its importance to AMC Theatres are grossly deceptive

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Why is a data-analytics company playing fast and loose with facts?

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Photo by Daniel Boczarski/Getty Images for MoviePass

On Thursday, the subscription service MoviePass decided to stop supporting several high-profile AMC Theatres locations in major cities. The move came after months of squabbling between the two companies, during which AMC detailed its concerns with the service’s long-term implications, while MoviePass rocketed to 1.5 million subscribers.

Today Ted Farnsworth, CEO of the data analytics firm Helios & Matheson — which purchased a majority stake in MoviePass in 2017, setting off the service’s across-the-board price reductions — released a statement defending the move. His press release claims MoviePass is “working to revitalize a declining industry,” and provides some estimates about how much MoviePass contributes to AMC’s bottom line. The statement is clearly framed to make it seem like MoviePass is indispensable to AMC’s future, and that the theater chain will have no choice but to go along with whatever concessions MoviePass is seeking.

But diving into the numbers, the opposite actually appears to be true. In fact, doing the math, it looks like MoviePass may account for less than 5 percent of the revenue AMC makes from ticket sales.

We’re reproducing the statement in full below, but here’s the key section addressing how much MoviePass contributes to AMC’s profits:

We know that we currently represent approximately 62% of AMC’s operating income, assuming that AMC is flat year over year. This equates to $34.4 million of gross profits to AMC in the upcoming quarter. On an annualized run rate basis, that’s over $135 million to AMC’s gross profits — which doesn’t include concession sales from MoviePass subscribers.

That certainly sounds impressive at first glance — 62 percent is a substantial amount of AMC’s business. But the number MoviePass is looking at isn’t gross income, it’s operating income, the money left over after a company’s operating costs have been considered. The reference point here appears to be AMC’s financial report for Q1 2017, where the company posted $55.4 million in operating income. (Taking 62 percent of that gets you to MoviePass’ $34.4 million number.) But the $55.4 million figure isn’t actually a useful comparison at all. Theatrical exhibition is a notoriously expensive business, with the costs of maintaining and operating physical locations, fees paid to studios, and a host of other costs aggressively eating into AMC’s significantly larger gross income.

The MoviePass claim is misdirection, if not outright deception

Since MoviePass doesn’t help offset any of those operating costs for theater owners, the service appears to be conflating two different sets of numbers by comparing the gross admissions it generates for AMC against the chain’s post-costs income. That’s misdirection, if not outright deception. As part of a statement released today, AMC responded that it was “disappointed that MoviePass continues to make false statements about AMC, including today when MoviePass greatly exaggerated its contributions to AMC’s profitability.”

The real way to judge how much MoviePass contributes is to look at what a chain like AMC makes in admissions, the people buying tickets. There, the numbers are starkly different, with MoviePass representing a small fraction of the overall revenue. AMC posted Q1 2017 admissions revenue of $817.3 million. Using MoviePass’ own projection, its contributions to AMC’s revenue would actually amount to just 4.2 percent — hardly the windfall the MoviePass statement attempts to project.

The reason for the overall conflict between the two companies appears to be revenue-sharing. According to Deadline, MoviePass has been pressuring AMC for a $3 cut on all tickets sold through MoviePass, as well as 20 percent of the concessions that those audience members generate. Representatives of the theater chain have been vocal about the fact that AMC will never share its concessions or admissions revenues with a third party, even though MoviePass has reportedly been able to close similar deals with independent theaters. Farnsworth’s statement also seems to confirm what we suggested yesterday: that MoviePass is doing this as a show of force because it wants AMC to play ball with those revenue-sharing requests.

“We’ve pulled 10 AMC theaters — less than 2 percent of theaters,” Farnsworth says in his statement. “We already know in past testing that MoviePass subscribers are not theater-loyal; they’re happy to drive by a theater that may be closer to a theater that will accept MoviePass — because of the MoviePass value.”

That appears to be the conflict in a nutshell: MoviePass has pulled the theaters to demonstrate that it can redirect audiences away from AMC theaters, hurting the company’s business. And it may be using particularly aggressive tactics because it doesn’t currently have enough clout or momentum to get the terms it wants. “MoviePass has less than 2 million subscribers. Last year, we had 1.3 billion movie tickets sold in the country,” Piper Jaffrey analyst Stan Meyers said in an interview with The Verge. “Even if those 2 million are seeing 20 movies a year instead of four, which is the average, that means they’re buying 40 million tickets. Not to downplay that, but 40 million out of 1.3 billion is not yet at a scale where it can demand major concessions from exhibitors.”

Hardball negotiating isn’t a new thing in business, but MoviePass made the move to shut out major theaters without notifying any of the customers who will be affected. This makes it difficult to accept the feel-good closer in MoviePass’ statement, that it will “fight battle” [sic] for its users. But the move does outline the stakes of this particular conflict. MoviePass may not really be helping AMC’s bottom line much, but it’s more than willing to hurt it, to the extent that it can. At the same time, MoviePass may be making itself less appealing in the process.

“The proposition of a MoviePass is that it’s exhibitor-agnostic,” says Meyers. “That it’s available everywhere. When you limit where you can and cannot go, it just becomes a less-valuable proposition.”

The Verge has requested clarification on MoviePass’ statement from Farnsworth or MoviePass CEO Mitch Lowe, and will update this post should they respond. Statements from both Farnsworth and AMC are included below in their entirety.

From Ted Farnsworth, CEO of Helios & Matheson:

When HMNY acquired the majority stake in MoviePass, we made the strategic decision to reduce monthly subscription fees to $9.95 a month to get movie fans back into the theaters. As we’ve grown our subscriber base, we’ve seen a dramatic increase in movie theater attendance among our subscribers, which proves to us that MoviePass is working to revitalize a declining industry. Other theater companies have seen this attendance resurgence and have approached MoviePass to collaborate. Since the get-go, AMC has not been interested in collaborating with MoviePass – a move that is not in the interest of our subscribers and AMC theater-goers.  

We know that we currently represent approximately 62% of AMC’s operating income, assuming that AMC is flat year over year. This equates to $34.4 million of gross profits to AMC in the upcoming quarter. On an annualized run rate basis, that’s over $135 million to AMC’s gross profits – which doesn’t include concession sales from MoviePass subscribers. In publicly disclosed 2017 financial documents, AMC claimed each customer spends $4.88 on concessions each visit – meaning MoviePass subscribers could bring an additional $17.1 million in AMC concession revenues for Q1 of 2018, which on an annual run rate means $68.4 million more --- an annualized run rate going forward of over $203.4 million revenue from MoviePass subscribers.

We’ve pulled 10 AMC theaters  -- less than 2% of theaters. We already know in past testing that MoviePass subscribers are not theater-loyal; they’re happy to drive by a theater that may be closer to a theater that will accept MoviePass –because of the MoviePass value.

From day one, MoviePass has been 100% for our subscribers – they are the most loyal fans we’ve ever seen and we’re honored to remove a price barrier than had been preventing the average movie-lover from going to the movies. We’re here for them and will fight battle for them every day of the week.

From AMC:

AMC has taken no action to block the acceptance of MoviePass at our theaters. We have no further comment about MoviePass’s unilateral actions. We are, however, disappointed that MoviePass continues to make false statements about AMC, including today when MoviePass greatly exaggerated its contributions to AMC’s profitability.

Update January 26th, 7:16PM ET: Clarified the meaning of operating income.