cpass

The Business Models of MoviePass and cPass

Over the weekend, a new company raised its heads above the parapets. cPass is a new subscription cinema going scheme that allows members to see one film a day at the cinema for a monthly fee of £9.95.

Cinema membership schemes aren’t unheard of, but they tend to be more expensive. Cineworld has its Unlimited scheme that costs £17.90 a month, rising to £20.40 if you want to include central London cinemas. My local suburban Cineworld charges £12.10 for a regular ticket in peak times. So I need to see 2 or more films a month to make a Cineworld membership worthwhile for me. But under the cPass scheme I’d only need to see one film to start making savings.

Odeon has it’s Limitless scheme and it’s very similar to the Cineworld offering. It costs £17.99 a month, or £19.99 if you want central London cinemas included. Note that the flagship Odeon Leicester Square is currently closed for renovations, although a single visit to that cinema can easily exceed £19.99 alone. However my nearest suburban Odeon charges £12.50 for a regular ticket in peak time. So as with Cineworld, I’d need to see two films a month for it to be worthwhile.

So how is cPass offering a seemingly better deal than either of two of the UK’s largest chains offer on their own, with the advantage that I can see films in any cinema (subject to terms)?

Well, they’re copying nearly precisely the US MoviePass model. That is, they’re not working directly with the cinema chains at all. What they do is send their members a debit card – I assume either Visa or Mastercard – and when someone books a ticket on their app, it puts some money in the debit card’s account for a limited time and lets you buy a ticket as you would with any regular debit card. The cinema gets paid, and you get a ticket.

But if I’m paying £12.50 for a ticket, yet have only paid £9.95 for an entire month, how does that make any business sense?

The Recode Media podcast recently interviewed the CEO of MoviePass to try to understand the model, and a few things emerge, whilst others remain unsaid.

The Gym Membership

Part of the model is the assumption that we won’t all be trying to see 31 films in a calendar month. The average person probably sees 2-4 films a year. i.e. not that many. Everyone knows that gyms are packed in January and then settle back down to a more manageable level shortly thereafter. Gyms have more memberships than members they can cater for. They hope that while some are going 5 days a week, more are going much less frequently and are too lazy to cancel their memberships. We’ve all heard the tales of onerous cancellation procedures – there was a whole Friends episode about this.

MoviePass are quite honest about the fact that when members first get their cards, they rush to see lots. But fairly quickly they drop back to a more modest level of film going.

We’ve all got subscriptions to things we don’t use as much as we should. Part of MoviePass’s model relies on that.

Different Areas – Different Prices

I live in Greater London and the price of a visit to my local cinemas is just more than £12. Other parts of the country may charge closer to £6. So the maths can be different, and even if they make a loss in London, it could be offset elsewhere.

That all said, cPass says it’s launching in the capital.

Growing the Market

On this week’s Kermode and Mayo podcast, the thorny subject of film piracy was raised again. It’s clear that lots of people are using dodgy streams to serve pirated films – much more so that downloading torrents of a few years ago. Kodi boxes with the right (i.e. “wrong”) plugins have made it simple to watch recent releases on your TV at home, perhaps having to suffer some dodgy pre-roll adverts.

Mark Kermode’s solution to this is the day and date multi-format release. That way, you could choose to buy the DVD or Blu Ray, stream for a fee on your preferred service, or go to the cinema.

I suspect that wouldn’t work very well and would swiftly see the end of cinemas altogether. How many families would honestly spend £25-30 or more for a trip to the cinema with all the add-ons when they could get the DVD, Blu Ray or legal stream for closer to £10? Visits to the cinema would drop away massively, and they would start closing. I don’t deny that the right film seen with a large audience is great fun, but I’m uncertain that this is enough to prevent a serious dent in cinema attendance.

While I’m not certain that the music model is quite right at the moment, it is true that the likes of Spotify have removed the reasons for downloading music illegally. You get high quality music either for free with ads, or for a relatively modest monthly sum, ad free.

Part of the cPass/MoviePass model is that more people will go and see more films. They grow the overall market and encourage those who see relatively few films to see more. In turn that generates more tertiary revenues for cinemas – i.e. popcorn sales.

The downside is that the likeliest people to take up something like cPass are those who already go to the cinema a lot. Indeed, subscribers to current unlimited schemes would surely swiftly cancel their current memberships and move to the cheaper model.

Scale and the New Normal

Scale is what it’s really all about. These companies want to become dominant in the market place and have their members become a significant part of the overall audience. That gives them an awful lot of power with the chains (see next section).

You need deep pockets to play this game, and the backers of these services are clearly spending to get to a certain level whereby they can start to use this scale to their own advantage. This is the familiar Silicon Valley model of spending heavily to get an audience or user base, and then turn it around to monetise it.

At the same time $9.95/£9.95 becomes the new normal for pricing schemes. As alluded to at the top, this is close to half the price of existing schemes that are generally limited to a single chain. It instantly becomes harder for Cineworld to market Unlimited when there’s a cheaper, better option out there.

As it stands the chains know who you are, how often you’re going and what you’re watching. That’s valuable data. They instantly lose that as patrons move to the cheaper non-affiliated deal.

Deals with Chains

This is the big unspoken bit. MoviePass in the US is already negotiating with smaller chains and indies to get both discounted tickets and even kickbacks from sales of food and drink.

If a large proportion of the population is using something like cPass or MoviePass, then a certain amount of power is wielded by those companies. They might try to “incentivise” members to use one chain over another by temporarily or permanently removing certain cinemas.

If this result in sizeable declines in box office takings at the removed cinemas, these companies could throw their weight around and “force” the chains to provide them with deep discounts.

This has happened in the US with MoviePass, who have excluded some AMC locations, seemingly to pressure AMC into giving it discounts.

It’s worth noting that deep discounts do already exist in the marketplace. Many corporate “perks” websites and other third-party membership deals offer significant discounts to cinema tickets. 50% discounts aren’t unheard of. You can safely expect that these pass companies will be pushing to get discounts at least as deep as these, because they can redirect audiences away from anyone who doesn’t play ball with them.

It’s a fine line of course, since if none of the chains play the game, then the pass companies could be left out in the cold, haemorrhaging money. But it’s going to be interesting to watch.

Would the chains consider themselves as being “held to ransom,” and being forced to co-operate when they don’t want to?

Marketing Opportunities

These pass companies will also be chasing revenues from film distribution companies as well. They can do deals to heavily promote certain titles and push their audiences towards them.

The data they collect on their subscribers viewing habits could potentially be used to point consumers to relevant films – or at least do as good a job as people like Netflix can.

Summary

This isn’t by any means a proven business model, and if the big chains hold firm on their pricing, then it’s unclear how it can ever be. If lots of people don’t go and see many films yet continue to pay $9.95/£9.95 a month, then the sums work anyway, but I suspect it’ll take more than that. Particularly if these cards become popular among the younger demographics for whom money is tight, but demand is high.

The strange thing is that cinema owning isn’t as profitable as it might be. Deals with distributors mean that for big releases a large proportion of the ticket revenue, particularly in early weeks of a release. It was reported that in North America Disney wanted 65% of box office revenues for The Last Jedi, and also required that the film played for at least four weeks in the largest auditorium. Failure to do this meant that the share would rise to 70%!

Lots of cinema chains are desperately seeking reasons to get people to upgrade their seats and spend more. We have premium seats, 3D films, IMAX and more recently 4DX – all trying to get you to spend more. These pass schemes mostly push for the cheapest tickets. Does this work against the needs of the chains?

And what does this mean for overall box offices? If tickets are being sold at cheaper price points, then even if there are more people on seats, the overall value might fall if a high proportion of movie goers are paying what are effectively discounted prices.

The pass companies would counter that they’re about growing the market. And that might be the case. But as mentioned above,the first group of people who are likely to jump on these schemes are regular cinema goers who can quickly save lots of money. Just as the early adopters of Spotify were those who in the past had spent a lot of money each week on music, now only had to spend a tenner a month for the same quantity!

A really interesting scenario would be if some of the UK chains formed their own cross-chain pass. In other words, merge Unlimited and Limitless with any other schemes out there. It’d potentially be cheaper to operate since you wouldn’t need to get any banks involved and all the costs of processing debit cards.

Making those unlimited/limitless cards cheaper would certainly grow the market, but would distributors be happy? Do the sums add up to fuller cinemas and a net increase in box office?

I find the whole model curious, and I’m really uncertain that it’ll work. But I’ll be paying close attention!