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Don’t be a selfless startup
One of the enduring truths of big companies is that they aren’t innovative. They are “innovative” in the marketing sense, but fail to ever execute on new ideas, particularly when those ideas cannibalize existing products and revenues.
So it often takes a real competitor to force these incumbent, legacy businesses to evolve in any meaningful way. Usually that change leads to disruption, in the classic way that Clayton Christensen describes in “The Innovator’s Dilemma.” An upstart company creates a new technology or business model that is better for an under-served segment of a market, and as that company improves, it competes directly with the incumbent and eventually wins over its market with a vastly superior product.
Unfortunately, real life isn’t so easy, as WeWork and MoviePass have shown us over the past few years.
In both cases, there were incumbents. In movie theaters, you had AMC and the like, which built a business model around ticket sales (shared with movie studios) and food/beverage concessions that targeted occasional customers at a high price point. Meanwhile, in commercial real estate, you had large landowners and family holders who demanded extremely long rent terms at high prices, often with personal financial guarantees from the CEO of the tenant firm.
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Remembering the startups we lost in 2019
All manner of startups fail for all manner of reasons. But there’s one constant: this is an incredibly difficult business. Launching a successful company isn’t just a matter of drive and finding the right people (though both, clearly, are important). Doing well in this business requires the stars to align perfectly on a billion different things.
A cursory look at this year’s batch of companies doesn’t find any story quite as spectacular as last year’s big Theranos flameout, which gave us a best-selling book, documentary, podcast series and upcoming Adam McKay/Jennifer Lawrence film. Some, like MoviePass, however, may have come close.
And for every Theranos, there are dozens of stories of hardworking founders with promising products that simply couldn’t make it to the finish line. There’s also room for debate about what is and isn’t a startup. For our purposes, we’re focusing here on independent startups, not digital initiatives from larger companies — though in at least one case, the startup was acquired by a larger company before shutting down.
So without further ado, here are some of the biggest and most fascinating startups that closed up shop in 2019.
Total raised: $182 million
In 2013, a promising young hardware startup showcased a new generation of slot cars onstage at the World Wide Developer Conference keynote. It was quite an honor for a young company. Apple was clearly impressed with how Overdrive pushed the limits of what could be done on the iPhone.
Three years later, Anki released Cozmo. The plucky little robot was the result of large investment, including the hiring of ex-Pixar and Dreamworks animators brought on board to craft a high range of emotions in the robot’s eyes. In late 2018, the company launched the similar but adult-focused Vector robot. By April 2019, Anki had shut its doors, in spite of selling 1.5 million robots and “hundreds of thousands” of Cozmo models.
Total raised: $3 million, acquired by Ford in 2017
Chariot was a shuttle startup hoping to reinvent mass transit with a fleet of vans for commuters. The routes, supposedly, were determined based on a “crowdsourced” vote.
After acquiring the service two years ago, Ford shut it down at the beginning of 2019. The company didn’t offer many details, except to say that “in today’s mobility landscape, the wants and needs of customers and cities are changing rapidly.”
Total raised: $132 million
Daqri, another high-flying, heavily funded AR headset business, shut its doors around September and completed an asset sale. The company is one of many in the sector that failed to succeed in its efforts to court enterprise customers, as well as in its efforts to compete with Magic Leap, Microsoft and others.
Daqri was, at one point, speaking with a large private equity firm about financing ahead of a potential IPO, but as the technical realities facing other AR companies came to light, the firm backed out and the deal crumbled, according to earlier TechCrunch reporting. Sadly, Daqri wasn’t the only AR business to crumble this year.
Total raised: $4.7 million
HomeShare tried to deal with the challenge of rapidly rising housing costs by matching roommates who shared apartments split into “micro-rooms.” The company said that as of March, it had about 1,000 active residents.
As part of the shutdown, HomeShare said residents would not be getting back the deposits for their partitions — but they would be able to keep the divider or sell it.
Total raised: $72.7 million
Between Anki and Jibo, you could say it was a tough year for consumer social robots. But then, there’s never been a great year for the category. Not yet, at least. Like the sad death of the original Aibo before it, Jibo’s end was punctuated by the incredibly depressing nature of watching an adorable robot friend draw its final breath. Jibo did just that in April, telling consumers, “I want to say I’ve really enjoyed our time together. Thank you very, very much for having me around.”
Jibo technically died in late-2018, but we’re making an exception due to the dramatic nature of its demise. The end came in spite of a successful crowdfunding campaign and a healthy amount of venture capital raised. In spite of it all, the startup was forced to lay off most of its staff and then, ultimately, send Jibo upstate to live on the robo-farm.
Total raised: $68.7 million, acquired by Helios and Matheson in 2017
Image: Bryce Durbin / TechCrunch
Holy hell. Where to even start with this one? When we were putting this list together, one TechCruncher remarked that he swore MoviePass shut down years ago. That’s because (not unlike some current political events), the ticket subscription service’s magnificent train wreck of a demise appeared to unfold over the course of several years, in excruciating slow motion. We wrote a lot about it. A lot, a lot.
In fact, there seemed to be a new disaster every week, as the company hemorrhaged money, limited its service, experience outages, borrowed even more money, was forced to enter a kind of zombie state and had a massive data breech. Oh, and then there was the John Gotti movie it financed that was arguably even worse. By the end of it all, MoviePass’ ultimate demise almost felt like an act of mercy.
Total raised: $125 million
One of the first startup scandals of 2019 involved a once well-known meal delivery startup, Munchery . After the business emailed its customers notifying them of its imminent shutdown, its vendors came forward with a slew of accusations. Namely, the food delivery startup took advantage of them in its final hours, knowingly allowing them to continue making deliveries it couldn’t pay for.
The company’s sudden demise sparked a debate around accountability. While the CEO and its venture capital investors stayed largely silent, its vendors cried out for an explanation and even protested outside the offices of Sherpa Capital, one of Munchery’s backers, in search of answers and payments.
Total raised: $145,000
One of the most recent additions to this list, Bay Area-based food startup Nomiku called it quits earlier this month. The company helped pioneer the consumer sous vide category, only to see the market flooded by competing devices. In multiple successful Kickstarter campaigns totaling $1.3 million, backing from Samsung Ventures and an attempted pivot into meal plans, the startup just couldn’t survive.
“The total climate for food tech is different than it used to be,” CEO Lisa Fetterman told TechCrunch. “There was a time when food tech and hardware were much more hot and viable. I think a company can survive a few hurdles, and a few challenges [ …] For me, it was the perfect storm of all these things.”
Total raised: $58 million
A pioneer in the AR glasses space, news emerged of Osterhout Design Group’s (ODG) demise in the first few weeks of January. Only a couple of years ago, the company raised a $58 million financing — less than a year later, it had burned through its funding and couldn’t pay employees. By early 2018, ODG had lost half of its workforce as it sought loans to pay back employees. By early 2019, only a skeleton crew awaited a patent sale after acquisitions from several large tech companies, including Facebook and Magic Leap, fell through.
“I hope Magic Leap is a huge success. I want everyone in AR to be a huge success,” Osterhout said in an interview with TechCrunch in 2017. “[Augmented reality] is going to be transformative.”
Total raised: $35.3 million
The startup began as a physical storage company, then tried to pivot after selling off its physical storage operations to competitor Clutter in May — it tried, unsuccessfully, to build a white-label software platform that would allow brick-and-mortar merchants to operate their own businesses for renting and selling products.
As part of the shutdown, roughly 10 Omni engineers were hired by Coinbase.
Scaled Inference (2014 – 2019)
Total raised: $17.6 million
Founded by former Googlers Olcan Sercinoglu and Dmitry Lepikhin, Scaled Inference made headlines in 2014 with a plan to build machine learning and artificial intelligence technology similar to what’s used internally by companies like Google, and making it available as a cloud service that can be used by anyone. The ambitions were grand and attracted investors like Felicis Ventures, Tencent and Khosla Ventures.
Unfortunately, the company was forced to call it quits recently. Former CEO Sercinoglu tells us the shutdown was a result of a lack of funding due to insufficient commercial traction. “We were working on various options until the last minute and retained the team as long as we could, but it did not work out. On the plus side, we were able to be transparent with the team throughout the process,” he said.
Total raised: $1.9 million
It was a rough year for MoviePass -style movie ticket subscription services in general. Sinemia seemed at first to be a more sustainable competitor, but it was plagued by subscriber complaints and even lawsuits around app issues, hidden charges and policies for shuttering accounts.
In April, the company announced that it was ending U.S. operations. To be clear, it did not say that it was shutting down entirely (much of its staff was based in Turkey), but the company’s website has since gone offline. If Sinemia survives in some form, it has disappeared from view.
Unicorn Scooters (2018 – 2019)
Total raised: $150,000
Unicorn Scooters was one of the first fatalities of the electric scooter craze of 2018, though certainly not the last. As the story goes, the business spent way too much money on Facebook and Google ads; the startup quickly shut down with no money left over to issue refunds for more than 300 of its $699 scooters that had been ordered.
The not-so-aptly named Unicorn had completed the Y Combinator startup accelerator only a few months before it called it quits, likely making it one of the fastest YC grads to shutter post-graduation. “Unfortunately, the cost of the ads were just too expensive to build a sustainable business,” Unicorn’s CEO Nick Evans wrote, according to The Verge. “And as the weather continued to get colder throughout the US and more scooters from other companies came on to the market, it became harder and harder to sell Unicorns, leading to a higher cost for ads and fewer customers.”
Total raised: $15 million
via @VrealOfficial twitter
Vreal was an ambitious game-streaming platform that aimed to let VR users explore the worlds in which live-streamers were playing. Those users could walk around streamers as avatars, or they could explore on their own as passive observers while listening to the live-streamer blast their way through zombies.
“Unfortunately, the VR market never developed as quickly as we all had hoped, and we were definitely ahead of our time,” the company said in a blog post. “As a result, Vreal is shutting down operations and our wonderful team members are moving on to other opportunities.”
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MoviePass will shut down on September 14th
MoviePass’ all-you-can-watch movie theater membership always seemed too good to be true. After multiple price hikes, business model changes, temporary shutdowns and raising a mountain of money less than a year ago, the company seems to be calling it quits.
MoviePass has issued an announcement letting customers know that the service will stop working as of September 14th — so, tomorrow — because “its efforts to recapitalize MoviePass
have not been successful to date.”
For the past few months, MoviePass had existed in a weird sort of zombie state; some customers in some regions were still able to use it, but no new subscribers were being accepted. Not helping the matter any, a database with “tens of thousands” of MoviePass customer card numbers was found unsecured at the end of August.
The company says it’s exploring “all strategic and financial alternatives,” from a massive “reorganization” to a sale of the company and all of its assets. In the meantime, though, it sounds like the service is dead, effective pretty much immediately.
Story developing…
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Atom Tickets to challenge MoviePass with a subscription ticket platform for theaters
MoviePass may still be trying to figure out how to make a movie ticket subscription service financially viable, but it can be credited for at least correctly identifying consumer demand for such a thing. There’s now a market for movie tickets by subscription from it as well as rivals like Sinemia, AMC Stubs A-List, Cinemark Movie Club, and — as of yesterday — newcomer Infinity. Now you can add one more: Atom Tickets, which is today announcing a platform that will allow theaters to build their own movie ticket subscription services.
The idea here is that the exhibitors themselves — not startups — should be involved in establishing the business model that’s right for them. Atom Tickets will instead provide the underlying technology and support that makes such a thing possible.
The new platform, called Atom Movie Access, will be offered to exhibitors across North America. It provides a fully digitally booking platform for subscribers through the Atom Tickets app. That means subscribers can also take advantage of Atom Tickets’ other benefits — like reserving seats in advance, inviting friends through their contacts, pre-ordering concessions for quick pickup where available and checking in using a phone instead of paper tickets.
On the back end, Atom Tickets will also handle the payment processing, customer service, fraud detection and anti-abuse measures. The latter is particularly important for movie ticket subscriptions, as MoviePass noted that as much as 20 percent of its customers were abusing the service, which significantly contributed to its financial issues.
In addition, the platform will allow subscribers to be able to make complex transactions in-app, like redeeming a free movie while also buying full-priced tickets for a guest in one sale. It also supports things like being able to choose between an included free screening or saving it for later, the company says, and allows for the creation of differently tiered plans. For example, there can be plans for both individuals or groups and tiers for standard and premium movie formats.
“Atom Tickets is an innovative ticketing platform that enables exhibitors to reach and engage new and incremental audiences,” said Matthew Bakal, chairman and co-founder of Atom Tickets, in a statement about the launch. “We’ve always believed in being a valuable partner to exhibitors, starting with the core functionality of our app, which allows for marketing promotions at specific locations, integrating exhibitor loyalty plans and giving customers the ability to pre-order concessions. Now with Atom Movie Access, we’re thrilled to provide the technology that will enhance the direct-to-consumer relationship of moviegoers with their favorite theaters.”
There are still several unknowns about the new platform — most notably the pricing for exhibitors. In an interview with Variety, Bakal suggested it would not be prohibitive as Atom Tickets would instead take a cut of subscriptions. The report also noted that no theaters have signed up yet, but the pitching will begin in earnest at a trade show next week in Las Vegas.
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MoviePass parent’s CEO says its rebooted subscription service is already (sort of) profitable
Two days after MoviePass announced the return of the company’s unlimited ticket plan, Ted Farnsworth, CEO of its parent company Helios and Matheson Analytics, sat down with TechCrunch to offer insight into the state of the beleaguered service.
According to the executive, MoviePass Uncapped is already seeing positive results. While he didn’t share concrete numbers, he says that sign-ups have increased “well over 800 percent in the last few days. And that’s conservative.”
Asked what it would take to make the company’s subscription business profitable, Farnsworth says, “Well, it’s profitable right now.” As for when it turned the corner, he added, “I will tell you this, because it’s out there: MoviePass has actually paid Helios back money over the past several months, towards the loans that they have. So, that gives you an idea of when we really started focusing on getting rid of the 20 percent of the abusers.”
Important caveat: A Helios & Matheson spokesperson later clarified that Farnsworth meant MoviePass’ subscription business is profitable on a revenue-per-subscriber basis. In other words, it’s not losing money on subscriptions, but the business unit isn’t necessarily profitable when you take overhead and debt into account.
The plan marks a return to the initial unlimited model that helped turn MoviePass into a household name in the past year. But that success arrived with a massive price, as the service began hemorrhaging money. MoviePass withdrew the unlimited plan and began reworking its plans on what seemed to be a weekly basis.
In July, at the height of what was supposed to be the Summer of MoviePass, the service experienced an outage as it struggled to pay bills. Helios secured a $5 million loan from creditors Hudson Bay Capital Management in order to turn the lights back on.
WEST HOLLYWOOD, CA – FEBRUARY 24: Ted Farnsworth attends the 27th annual Elton John AIDS Foundation Academy Awards Viewing Party sponsored by IMDb and Neuro Drinks celebrating EJAF and the 91st Academy Awards on February 24, 2019 in West Hollywood, California. (Photo by Jamie McCarthy/Getty Images for EJAF)
“I think the big SNAFU there was the credit card company,” the executive explains. “When one company sold to the other, we had been doing business with them for four years. They decided it was too much credit for them and literally call the credit line on a Friday night and I do a personal guarantee on a Saturday.”
However things might have gone down on the back end, the optics of such a situation were clearly less than ideal. MoviePass’ struggles were very public from the beginning, as part of a publicly traded company. A literal shut down for the service appeared to be just the latest sign that the too good to be true service was exactly that.
And while Farnsworth admits that the company would have benefited from a bit more privacy, he claims that he never had any doubts about MoviePass’ future, even as he negotiated with creditors for a fresh cash injection.
“There were no moments in my mind where I thought it would go down. In my mind, I thought it was too big to fail,” he says. “You created a household name in less than a year. I think any time you have something like that, where you’re going to run into issues from sheer growth. Our investors did well investing along the way. The investors believed in us and they still do. We knew we had to slow it down to get in front of the fraud side because there were so many moving parts. It was moving so fast.”
It’s that “fraud” that was at the center of MoviePass’ woes, says Farnsworth. MoviePass’ initial downfall, he believes, was the product of too many users “gaming the system.” He believes the total number of users that fall into that category to have been around 20 percent of the overall subscriber base.
It was a minority, certainly, but still a sizable figure, given that, by June of last year, that total figure had exceeded three million. By that point, the service also comprised around five percent of U.S. box office receipts. Much of the past year has been spent attempting to plug holes in the subscription service as the MoviePass boat began rapidly taking on water.
To be clear, “gaming the system” doesn’t just mean watching a lot of movies — Farnsworth says he’s happy to have “hardcore” users, even if they’re buying way more than $9.95 or $14.95 worth of tickets. Instead, his concern is users who are doing things like sharing their subscription or just using a MoviePass ticket to use the theater’s restroom — something surprisingly common in places like Times Square, where public bathrooms are hard to come by.
One of the primary fixes, Farnsworth says, is utilizing mobile tracking to ensure that subscribers are, in fact, using the service as intended, and looking for “red flags” like constantly changing the device using the app. Users are already required to enable location-based tracking in order to enable ticket purchase. This will utilize that to ping the ticket purchaser’s location, in order to make sure that they’re actually attending the movies for which they’ve purchased tickets.
“For instance, another issue is where people would go to the theater, they’ll pick up the ticket, they’ll hand their ticket to the kid or their child or their friend or whatever it is … and the person that’s paying the subscription goes back home or whatever they do,” he says. The new strategy: “When the movie starts, 30 minutes later [we’re] able to ping them inside the theater, just to make sure they still are at that theater.”
Looking ahead, Farnsworth says that the days of constantly changing pricing and restrictions are over, and that the company is committed to the unlimited plan. In fact, in his telling, the goal was always to get back to the unlimited plan — it was just that MoviePass had to figure out how to cut down on fraud to make the plan work.
At the same time, he says MoviePass’ film studio will also be an important part of the business. It has been overshadowed by the headlines about the company’s subscription struggles, but MoviePass Films has titles starring Bruce Willis, Al Pacino and Sylvester Stallone scheduled for this year.
MoviePass also invested in “Gotti,” and although the film was reviled by critics and only grossed $4.3 million at the box office, Farnsworth doesn’t see it as a failure.
“We never looked at Gotti as a money-maker” he says. “They only projected that it would do a $1.3 million in the box office here. Because then, when we pushed it with MoviePass, we took that up to five million. So, I mean, when you can take a movie — I gotta be careful here, but when you take a movie that might not be that great or perfect, and you can move that needle, [that] was always our theory of subscription.”
Check back later for our full interview with Farnsworth. Also, this post has been updated to reflect that MoviePass recently saw 800 percent growth in sign-ups (not subscribers), and to clarify Farnsworth’s remarks about profitability.
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MoviePass brings back its unlimited movie plan, with a limited time price of $9.95
MoviePass is bringing back a version of the plan that made it so popular in the first place — a subscription where you pay a monthly fee and get an unlimited number of 2D movie tickets.
MoviePass Uncapped will have a regular price of $19.95 per month, but the company is offering cheaper deals for what it says is a limited time. If you’re willing to pay for a full year (via ACH payment), it will cost the same as that original unlimited plan, namely $9.95 per month. If you don’t want to make a full-year commitment, it will cost $14.95 per month.
Now, you may be thinking that this kind of deal is exactly what got MoviePass into so much trouble last year, to the point where it nearly ran out of money and began announcing new pricing plans and restrictions on a seemingly constant basis.
However, the company’s announcement today includes multiple references to its ability to “combat violations” of MoviePass’ terms of use. And those terms do say that “MoviePass has the right to limit the selection of movies and/or the times of available movies should your individual use adversely impact MoviePass’s system-wide capacity or the availability of the Service for other subscribers.”
So if you’re a heavy MoviePass user, the plan may not be truly unlimited.
In addition, you’ll only be able to reserve tickets three hours before showtime, and you’ll need to check in to the theater between 10 and 30 minutes before the movie starts.
This new plan replaces the ones announced in December. If you’ve already signed up, you can stick to those subscriptions, but new users won’t have that option.
In a statement, Ted Farnsworth, CEO of MoviePass parent company Helios and Matheson Analytics, said:
We are – and have been – listening to our subscribers every day, and we understand that an uncapped subscription plan at the $9.95 price point is the most appealing option to our subscribers. While we’ve had to modify our service a number of times in order to continue delivering a movie-going experience to our subscribers, with this new offering we are doing everything we can to bring people a version of the service that originally won their hearts.
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MoviePass announces new pricing plans for 2019
It’s been a rocky year for MoviePass, something that CEO Mitch Lowe acknowledged in an interview this week with Variety.
“We have a lot to prove to all our constituents,” Lowe said. “We don’t just have to prove ourselves to our members, we also have to prove ourselves to the investment community, our employees, and our partners. We believe we’re doing everything that we possibly can to deliver a great service and we’re in the process of fixing all the things that went wrong.”
To that end, the company is launching a new pricing structure that will take effect in January. If you like paying $9.95, don’t worry: You’ll still be able to do that (at least in some geographies). If, on the other hand, you’re willing to pay a little more, you’ll no longer be limited by the ever-changing list of movies that MoviePass is supporting on a given day.
So there are now three tiers, each of them offering three movie tickets each month. There’s Select, which will cost between $9.95 and $14.95 per month (depending on geography), and will only allow viewers to watch certain movies on certain days; All Access, which costs between $14.95 and $19.95 and allows you to go to any standard screening; and Red Carpet, which costs between $19.95 and $24.95 and includes one IMAX, 3D or other large-format screening each month.
The company says that this new structure will allow it to break even on the tickets it’s selling — a key step to making the business model work.
MoviePass fans will likely remember that the company appeared to be running out of money over the summer, leading it to announce a price increase, only to back away from the price hike in favor of adding limitations on how many movies and which movies subscribers could see.
Meanwhile, the New York attorney general’s office said it was investigating MoviePass for possible securities fraud, and parent company Helios and Matheson said it would spin off MoviePass into a separate company. (TechCrunch’s parent company has a stake in MoviePass.)
The competition is growing. And app store intelligence company Sensor Tower says MoviePass only added 12,000 new users to its mobile app last month, down 97 percent from the growth it was seeing at its high point in January.
In addition to rethinking its pricing, MoviePass is also making organizational changes. The company told The New York Times that although Lowe will remain CEO, he’ll be handing over responsibility for day-to-day operations to Executive Vice President Khalid Itum.
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MoviePass says those cancellation bugs have been fixed
MoviePass is about to roll out its new subscription plan, which will keep prices at $9.95 while imposing a new limit of three movies per month. But it seems that the transition hasn’t been going entirely smoothly.
The Verge reports that several users have complained about previously canceling their plans, only to receive emails from the service suggesting that they were still subscribed.
We reached out to a MoviePass spokesperson, who confirmed that there were “bugs” in the cancellation process, but said they’ve since been fixed:
On Monday, August 13th, we learned that some members encountered difficulty with the cancellation process. We have fixed the bugs that were causing the issue and we have confirmed that none of our members have been opted-in or converted to the new plan without their express permission. In addition, all cancellation requests are being correctly processed and no members were being blocked from canceling their accounts. We apologize for the inconvenience and ask that any impacted members contact customer support via the MoviePass app.
The company also said that all members are being given the option to either opt in to the new plan or cancel their memberships. If someone doesn’t respond by the end of their billing cycle, their subscription will be automatically canceled.
The new plan is part of a broader effort at MoviePass to try to get the company to profitability. In addition to capping monthly tickets, the company is keeping big releases off the service for the first couple of weeks — and apparently, forcing subscribers to choose between only two movies at a given time.
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MoviePass borrowed $5M to end yesterday’s outage
More bad news for subscription movie ticket service MoviePass, which acknowledged yesterday that there was an unidentified issue preventing people from using their MoviePass credit cards to get tickets.
A regulatory filing from parent company Helios & Matheson offers more insight about what happened. The filing (first spotted by Business Insider) announces a “demand note” of $6.2 million, including $5 million in cash that the company borrowed. It goes on to explain:
The $5.0 million cash proceeds received from the Demand Note will be used by the Company to pay the Company’s merchant and fulfillment processors. If the Company is unable to make required payments to its merchant and fulfillment processors, the merchant and fulfillment processors may cease processing payments for MoviePass, Inc. (“MoviePass”), which would cause a MoviePass service interruption. Such a service interruption occurred on July 26, 2018.
In other words, it looks like MoviePass wasn’t able to pay one of its service providers, which led to the outage. In order to make those payments, it borrowed $5 million.
This doesn’t exactly inspire confidence in MoviePass’ finances. A Helios & Matheson filing from earlier this month suggested that the company was looking to raise up to $1.2 billion in equity and debt financing to fund MoviePass’ operations and growth.
Meanwhile, although the service is best-known for offering access to unlimited movie tickets for $9.95 per month, the specifics of the pricing model have been changing pretty frequently.
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MoviePass parent drops another 46%
There’s been another bomb at the box office, and it isn’t a movie.
MoviePass parent Helios & Matheson lost nearly half of its remaining value today as investors continued to flee the cash-burning movie service. That drop followed a 31 percent dive yesterday, after the company filed a statement with the SEC warning that it would have to sell equity in the coming weeks for it to remain solvent. Since Thursday’s opening bell last week, the stock has moved from $2.13 to $0.79, a drop of 63 percent. The company’s market cap is now $51.44 million.
MoviePass CEO Mitch Lowe said in a written statement that “Our burn rate has been slashed by 35-40% by the implementations and abuse prevention measures we have put in place over the last few weeks. We have always known, from when MoviePass took off in August, that it was going to be a high cash burn business model. We are not changing our guidance on 5 million subscribers by the end of this year – which should make us profitable/cash flow positive according to our business model. We have access in capital markets to over $300 million. So there is plenty of cash available to sustain the subscriber growth and movie-going habits of our users.”
Those are the facts as we know them, but let’s consider some of the options the company has now.
Even if you believe the market demand for Helios’ stock (I, for one, find them incredulous), there is an enormous challenge of converting that money into equity now. The envelope math looks like this: A month ago when the stock closed at $4.21, buying 20 percent of the company would have cost roughly $55 million. At the company’s current average burn rate of $21.7 million per month, that cash would have lasted approximately 2.5 months.
Now though, with the stock price so low, getting cash on the balance sheet today is a much harder proposition. That same $55 million that bought an investor a fifth of the company last month would be a complete buyout today. Buying 20 percent only costs a bit more than $10 million now, or roughly two weeks of burn.
So what’s the trick here that will save the company?
The obvious option is to radically control burn. The company could offer pricier tiers for heavy users of MoviePass, and could put a ceiling on the number of films a customer can watch per month as it did temporarily a few weeks ago. Lowe seems deeply committed to overall subscriber growth though, and that makes any sort of constraints on the product unlikely. The reason is that subscribers are the leverage Lowe needs to negotiate better partnership arrangements with theater chains, so he has to keep trying to grow users rapidly.
One theory is that the company could be negotiating equity deals with theater chains like AMC, which could be enticed by the low price of the stock to “buy in” to MoviePass’ popularity. Such media equity partnerships are not unusual — Sony, for instance, was a major shareholder in Spotify, as was Warner Music group, although both have since sold off large percentages of their holdings. Given the reliance of MoviePass on theater chains, building an equity partnership could prove to be the service’s savior.
A well-publicized partnership — including discounted movie tickets for MoviePass — could boost the stock significantly since the cost savings would improve the company’s burn rate. That could be an enticing proposition for the chains, since they could realize an almost immediate gain on their investment, plus the ongoing proceeds of a partnership going forward.
The other tactic would be to sign up more MoviePass subscribers who watch limited films. This is what might be called the “gym membership model” of trying to identify customers who want to buy a membership as an aspirational purchase, but who won’t actually use the facilities often. The challenge, beyond the incredibly short time period to try to build that marketing funnel, is that MoviePass appears to lose money on the very first ticket a customer purchases. The question isn’t how much revenue each customer generates, but how much the losses can be minimized.
The situation is a high-wire act, and the company will either hit the ground in the next few weeks, or it will right the ship, limit expenses and get enough equity investors to give it some cash to burn and keep on growing. I’d say use your MoviePass while you have it, but then again, that’s exactly why the company is faltering to begin with.
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