Usually, when things seem too good to be true, they are, which might be the problem for MoviePass. According to a new report, the movie subscription service only has enough money to keep the service going for another couple of months. The subscription service allows subscribers to pay a flat fee of $10 a month to go and see a movie every day of the month. The service has been criticized by some theater chains and competitors as being too good to be true. It seems that we'll find out really soon if it actually was not the best business deal.
CNN reports that MoviePass' parent company, Helios and Matheson Analytics, only has about $15.5 million in cash, plus another $27.9 million in accounts receivable. The information was provided by documents filed last week with the US Securities and Exchange Commission. As it stands, MoviePass reportedly burns through about $21.7 million every month to keep the service running, which means that there's about 2 months left in terms of cash flow. Unless something drastic happens, it looks like MoviePass could be finished really soon.
Shares for Helios and Matheson Analytics have been dropping for months, more than likely in preparation for this news. After the announcement last week, shares fell in additional 46 percent and are now being traded for less than a dollar. Michael Pachter, an analyst for Wedbush Securities, commented on the business model in pretty negative terms. He had this to say.
"They appear to have enough cash to last two months. Sounds like a terrible business model to me, and I can't imagine that any sophisticated investors will view it differently."
It doesn't take a financial analyst to look at MoviePass' numbers to realize that there is something wrong. The subscription service came into the news last August when it dropped its subscription price to only $10 a month, which is lower than it costs to see one movie in certain areas. The idea was to lower the price and gain as many new subscribers as possible, which seemed to work for a short amount of time, but the business model was not sustainable, even with gaining nearly 5 million subscribers in a year.
Helios and Matheson CEO Ted Farnsworth says that MoviePass always expected to burn through a lot of money quickly and does not believe that this is the end of the subscription service. Farnsworth went on to claim that they have access to over $300 million in capital markets, but did not go into any specifics when asked last week. Even with supposed access to another $300 million, MoviePass seems to be doomed unless they can figure out a way to gain millions of more subscribers by the end of the year, which seems pretty unrealistic at this point in time. However, MoviePass has lasted this long maybe they can hang on a bit longer by the skin of their teeth. You can read the original report about MoviePass going under at CNN.