Auditors Doubt MoviePass Sustainability

While its supporters love it and studios and exhibitors have had understandable issues with it, most of the arguments for or against movie ticket subscription service MoviePass have been discussed by those with some skin in the game – and thus tend towards a certain level of bias.

That changes today. Variety reports that Rosenberg Rich Baker Berman & Co., the independent auditor of MoviePass’ parent company Helios & Matheson Analytics, has issued a report about the acquisition and apparently there is “substantial doubt” about the company’s ability to continue operating.

MoviePass has attracted more than two million subscribers since slashing prices and offering a monthly plan for $9.95. Users can see a movie-a-day in return for signing up for the service and MoviePass pays most theaters full price for the tickets its subscribers buy – meaning they are heavily subsidizing movie-going and that is leading to understandable losses:

“MoviePass currently spends more to retain a subscriber than the revenue derived from that subscriber and MoviePass other sources of revenue are currently inadequate to offset or exceed the costs of subscriber retention. This results in a negative gross profit margin. MoviePass expects its negative gross profit margin to remain significant until MoviePass can sufficiently increase its other sources of revenues to offset the losses or achieve substantial economies of scale… There is no assurance that MoviePass will be able to sufficiently increase its other sources of revenue or be able to achieve economies of scale that would reduce the cost of revenue sufficiently to generate a positive gross profit margin.”

Helios & Matheson reportedly lost $150.8 million in 2017, a loss ascribed to its acquisition of MoviePass (its 2016 loss was just $7 million). MoviePass will reportedly have a need for additional funding and will have net losses for the foreseeable future, though the company’s CEO Mitch Lowe claims it will be profitable by 2019.

Additionally, Helios & Matheson CEO Ted Farnsworth says he has had raised $280 million and secured a $375 million line of credit since buying MoviePass in August. Investors aren’t spooked either, the company’s shares are up 36% in the last five days.