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The MoviePass Legacy: Fraud, Fallout & A Pandora’s Box

Posted on the 09 August 2019 by Weminoredinfilm.com @WeMinoredInFilm

Tom Cruise has conquered many cinematic foes in his days - aliens, ancient mummies, injustice, and, of course, beach volleyball. Now that list needs to be amended to include the following: MoviePass.

Yes, MoviePass - that totally legit and not at all suspect service which promised a movie a day for ten bucks a month and then promptly ran out of money a year later - was felled by the man whose laugh never seems to stop. In truth, Cruise wasn't the real culprit. No, a whole lot of shady, likely illegal business practices did that. However, Cruise happened to be the man starring in the latest blockbuster of the moment last year when MoviePass finally broke.

The MoviePass Legacy: Fraud, Fallout & A Pandora’s Box

If you were a MoviePasser - or MPs, as I'd like to believe we all called ourselves but now realize it was probably just me - at the time you likely remember all too well the weekend that you went to see Mission: Impossible-Fallout only to be turned away because your damn MoviePass app swore there were no more screenings in your area even though there clearly were. The company's official explanation: technical issue; the real explanation: yeah, they totally locked everyone out on purpose.

That last part comes from a new BusinessInsiderreport, the result of a four month investigation into the man (Stacy Spikes) who dreamt of being able to see as many movies in theaters per month as you want in exchange for a reasonable price, the Netflix co-founder (Mitch Lowe) who perverted that dream with unrealistic promises, and the disgraced, penny stock-hoarding, tax-dodging Florida businessman (Ted Farnsworth) who ran the company into the ground.

Long before the ship sank, Lowe and Farnsworth fired Spikes and attempted to use a loss-leading, but highly publicized membership drive - ten dollars for 30 movies a month! - as leverage to make profit-sharing demands of movie theaters and studios while also offering them valuable user data. The theaters and studios didn't bite. Public backlash put the kibosh on any Cambridge Analytica-like push into data mining.

The MoviePass Legacy: Fraud, Fallout & A Pandora’s Box Lowe and Farnsworth with John Travolta at the Gotti premiere. No word on whether Travolt actually had any idea who they were.

As a result, an always unsustainable business model stopped, well, sustaining itself and MoviePass quickly went on life support. Subscriptions plummeted from the millions into the low two-hundred thousand territory, and the service finally shut down on July 4th this year with promises to come back in a re-tooled form. Don't hold your breath. MoviePass still faces a class action lawsuit over bait-and-switch practices, and its parent company is currently being investigated for securities fraud by the New York Attorney General.

The MoviePass Legacy: Fraud, Fallout & A Pandora’s Box The MoviePass Legacy: Fraud, Fallout & A Pandora’s Box

Amid all this turmoil, BI got plenty of the ex-employees to share their stories about what this digital Rome looked like back when it first started burning. It's mostly a lot of cash flow issues leading to "and then Mitch Lowe made us throttle the app's usability," including changing the passwords of super users to stop them from draining the system and intentionally locking out half of all MoviePass subscribers the weekend Mission: Impossible-Fallout opened. Of course, Lowe and his spokespeople lied their assess off about it at the time, but it was just the start of a new practice of automatically locking the app based on daily cash flow. Once the daily dollar limit - initially set in the millions but quickly down to just a couple of hundred - was met the app automatically stopped working.

That might not be legal.

Hui Chen, the first compliance counsel expert at the US Department of Justice, told BI, "If a company is essentially interrupting its service on purpose so that the customers would not be able to use it as promised, that sounds like cheating to me. Without having any further knowledge I don't want to make a legal characterization to call it fraud, but it certainly sounds like it's cheating the customers. That kind of cheating is at least unethical and it's easily something that would be illegal with the right set of circumstances."

The MoviePass Legacy: Fraud, Fallout & A Pandora’s Box

As a recent Fyre Fest documentary argued, "It's a great time to be a con man in America." So, who knows if actual accountability will be honored here or skirted around as per usual. However, MoviePass' run of possible white collar crime will be but a footnote to its larger role in the history of cinema. Lowe speak early and often about movie theaters needing to change with the times and meet consumers halfway with pricing options closer to what they've become accustomed to thanks to streaming. He just didn't have a Plan C for how to actually make that profitable when Plans A and B - demand a cut of concession sales from theaters and/or sell user date to highest bidder - fell through.

The theaters resisted, fearing a Pandora's box turn of events where once consumers got used to paying a monthly fee they'd never want to turn back. Just because streaming services were taking over TV didn't meant movie theaters had to follow suit with a la cart pricing, not when the only way for that to be profitable in the brick and mortar setting is if the subscriber counts remain moderate and manageable. Art house theaters, for example, have been offering subscriptions for years but more in the spirit of PBS membership pledge.

However, AMC, Regal, and Cinemark - the three leading theaters chains in North America - have now introduced their own versions of monthly subscription services like MoviePass:

  • AMC's A-List ($19.95 per month with variable pricing in bigger markets) lets you see three movies a week - 2D, 3D, Imax, whatever - and waives online and transaction fees. The service is now up to 900,000 subscribers and seems to be adding at least half a million new subscribers every month.
  • Regal Unlimited ($18-$23.50 per month) - launched just a couple of weeks ago - promises, as you might guess from the name, unlimited movies just with extra fees for 3D and IMAX as well as differing pricing tiers if you want to limit yourself to only your local Regal locations or potentially any Regal in the country. Plus, 10% concession discounts. This is all based on a service Regal's parent company has been offering in Europe for years.
  • Cinemark ($8.99 per month), with easily the least robust offer, gives you one free movie a month along with 20% concession discounts.

Plus, Alamo Drafthouse has an unlimited subscription services scheduled to launch nationwide by the end of the year. It is currently in the beta testing phase.

The question which faced MoviePass still faces the theaters: how can you make "Netflix for movie theaters" profitable? AMC's chairman has already acknowledged the company views A-List as a loss leader and the specter of an inevitable price hike looms large, but more foot traffic means more concession sales.

In an era where all of the entertainment industry's brick and mortar businesses have already died the movie theaters are the last ones left standing...literally. MoviePass opened that pandora's box of monthly subscription pricing and has now disappeared down a hole of litigation, finger pointing, and cultural mockery. The actual movie theaters - with their 50/50 ticket sales splits with the studios and concession markups - are better positioned to actually make this work. Thanks to MoviePass, we'll know something has gone horribly, horribly wrong if the AMC A-List suddenly won't let us see the newest Tom Cruise movie. What a legacy.

Source: BusinessInsider The MoviePass Legacy: Fraud, Fallout & A Pandora’s Box

Grew up obsessing over movies and TV shows. Worked in a video store. Minored in film at college because my college didn't offer a film major. Worked in academia for a while. Have been freelance writing and running this blog since 2013. View all posts by Kelly Konda

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