Staying In Business: MoviePass CEO Mitch Lowe
MoviePass CEO and former founding executive of Netflix, Mitch Lowe, on building an enterprise that stays the course (regardless of the challenges that may hit it along the way).
Mitch Lowe, the CEO of MoviePass, a New York-headquartered discount movie ticket subscription service, seemed collected and optimistic during a fireside chat organized by Dubai Internet City and Dubai Science Park on the sidelines of the 38th GITEX Technology Week in October.
It is perhaps not what one would expect from someone whose everyday tasks include desperately trying to keep the company afloat, whilst battling with bad press and vocal frustration from some of its more than three million subscribers.
And when we sit for an interview after the on-stage chat, Lowe gives off an aura of authority that the burning issues have already been taken care of, and that the company will get to profitability quicker than currently expected.
MoviePass’s main premise -letting moviegoers see a movie a day for a monthly fee- has gone through a number of formula adjustments, including the initial one film a day for US$9.95 a month package, to ill-fated attempts to introduce the $14.95 price increase and surge pricing, and to finally returning to the original price but for three movies per month, while also charging extra for the most popular films and desirable show times. Lowe is confident that the latest pivot has brought them to a winning formula. “This is a breakeven business model for us,” he says. “And we have never wanted to make money on subscription, but to breakeven or even loose a dollar or two per month, but make money in other ways.”
Lowe goes on to explain that the company’s main customer segment is occasional moviegoers, stating that 230 million Americans only go to four and a half movies a year, while another 18 million to 20 million go to 18 films a year. “The average cost of a movie ticket in the US is $8.73, so $9.95 is a little bit more than one movie ticket,” he adds. “And if you price a product at $9.95, which is low enough to appeal to those occasional movie goers, when they join MoviePass, they will double the number of movies they go to. They will go to roughly 10 or 11 movies a year.” How MoviePass generates the much-needed revenue is through additional services, namely advertising, studio partnerships, and offering combo packages that include babysitting or dinner services. “Studios pay us a lot of money per month to promote their titles, and we also have brand partnerships with companies offering services through the platform,” Lowe says. “So, essentially the business model is to breakeven on the subscription, and you do that by getting a lot of people from lower cost market segments, who end up going once a month, which is also good for the industry, because those people used to only go four times a year, and then make money in other ways.”
Recently, MoviePass’ parent company Helios and Matheson Analytics Inc. launched MoviePass Films in an attempt to steer Movie- Pass subscribers toward the films the company invests in. At the time of writing, Helios and Matheson Analytics also announced its plans to spin out MoviePass and some associated holdings into an independent company, in order separate the movie services’ brand from its own. “We have this great ability to get people to go to see a movie which prior to that marketers couldn’t convince them to do,” Lowe says. “In fact, we were able to triple the number of our subscribers who go to a movie when we marketed it. So, we thought why we not do it for ourselves, because if you are able to improve the likelihood of success for a film by marketing it to your own subscribers then it makes a lot better investment. So, that is why we bought half of the studio and we are releasing films that we make sure people know about. Those movies are intended to be “bonus movies” for MoviePass subscribers, not counting towards their monthly movie allotment, while a select group of subscribers will get the chance to attend the films’ red-carpet premieres and receive other perks."
Speaking about the company venturing into the filmmaking business, Lowe opines on the future of storytelling and content creation. “With the democratization of content creation due to lower cost equipment and the related ability to tell more stories, I think we are going to see a proliferation of people making a lot of content, and then going direct to consumers, bypassing traditional distribution,” he says. “Also, what I’m seeing in the media space is the move towards shorter and shorter content. Up until recently, you couldn’t put into production a movie that was less than an hour and a half long, and you couldn’t get produced a TV series that had fewer than 13 episodes. But we are now seeing content being made that is 10 minutes long. Lastly, the idea to create local content is driven by consumers wanting less and less American, Hollywood type of content, and more content that speaks to them, emotionally and personally. For example, content made in South America and China is now incredibly popular in the US and Europe.”
The only problem Lowe faces right now, according to his own words, is dealing with rapid business expansion. “As an entrepreneur, one thing you always pray for is fast growth, and I’ve learnt this year that fast growth can have its own problems,” he says. “Last year, we did about $20 million, and this year we’re going to do between $300 and $400 million, and with that we have seen all kinds of problems. We thought that we were still in a kind of test and learn mode, but it turned out that millions of people loved what we have to offer. In fact, we were the fastest growing entertainment subscription service, faster than Spotify, Netflix, and so on. With Netflix, it took us 38 months to get to 1 million subscribers. With MoviePass, we did it in four months.”
However, a quick look at the company’s competitors, including the largest US cinema chain AMC Entertainment’s Stubs A-List subscription service, Sinemia and Cinemark Movie Club, would make one doubtful of MoviePass’s enviable position. However, Lowe is just as calm when talking about the ongoing movie-ticket subscription wars. “Most of the industry thinks that we are going to fail, and in fact, every month, there are bets, studios keep on betting that in May, we are going to go out of business, or in June, we are going to go out of business, but we are still in business,” he says. “So, I think that the challenge for all startups is figuring out how to balance growth, and funding, and delivering a product that eventually can make money. Amazon was losing money for 20 years, Spotify is still losing money. There’s an endless list of these companies but you need to have a plan in place for how you will get there. Because when you start experiencing this fast growth, you sometimes find that you don’t have enough time to figure it all out. And that’s the position we are in, but that challenge energizes me.”
Reportedly, concerns over MoviePass’s survival caused the shares of its parent company, Helios & Matheson Analytics Inc., to lose more than 99% of their value this year. Responding to a related question from the audience during the panel, Lowe says, “I’ve learnt that it is important to listen more, and to make sure that I don’t miss out on what people are telling me, because they are not telling me things in a straightforward manner. My recent example is with my investors who had invested about $300 million into MoviePass. In hindsight, now I know that there had been a period of a couple of months when they had been asking me more and more questions, so I should have realized that they were getting cold feet. I should have acted faster to change the business model. So, it’s about listening and not being so focused on what needs to be done day-to-day.”
While powering through this storm, he gained another important insight, namely the need to create a safe environment for his team members to speak openly and truthfully. “It is about collaborating with my team better,” Lowe says. “If you have an organization with multiple levels, you never hear a straight story from the people who report to you. I find hiring people right after college, or those who haven’t gone to college as first-time employees great, because you get to hear exactly what is going on. They are not politically correct, they will tell you everything. Your direct reports will always color what they are conveying to you.”
I find it hard to reconcile the Lowe who patiently answers my questions, his smile never drooping, and the Lowe portrayed in the ongoing run of worrying MoviePass-related coverage. At moments, our audience also seems nonplussed by his effortlessness, possibly wondering how Lowe keeps up the notion that MoviePass is here to stay. But then again, I realize that it is a genuine self-confidence of a man who has already been through a similar storm.
Lowe is best known for being a founding Executive at Netflix, Inc., serving as its Entertainment Domain Expert and as Vice President of Business Development and Strategic Alliances from 1998 to 2003. Netflix has arguably become one of the most successful dot-com ventures of our times, but only after starting its streaming business in 2008- 10 years after its launch. “The life of an entrepreneur is overcoming all those obstacles,” Lowe says. “At Netflix, we had a thing called the 90-day-rule, so every 90 days, we would reinvent the business if what we were doing wasn’t working. It wasn’t that we weren’t successful before 2008. In 2002, we went public, and made almost $100 million in revenue. Our movies-by-mail was essentially about sending three movies a month to millions of subscribers across the US, but before that and the consequent streaming service, we had probably six different iterations of the business. It was really about not giving up.” The key, Lowe says, is in having reliable partners, such as Reed Hastings and Marc Randolph, co-founders of Netflix. “If you are all by yourself, the chances are that you are going to give up,” he says. “One of the things that I found incredibly motivating about the three of us was that when we first had a new idea, each of us went and told our wives and children about it, and they all said it was the stupidest idea they had ever heard. That motivation to prove your wife and your children wrong was what kept us going.”
Apart from MoviePass, Lowe has made many personal investments in startups primarily in the entertainment sector, including Cantaloupe Systems, Booxby, and Vidbox. His investment strategy, he says, has improved over the years. “I have learnt a lot over the last 10 years about how to pick good investments, and one of the things that always inspire me is meeting the leaders of startups, when I see the passion and the intelligence and all the other skills that can make someone successful,” Lowe explains. “That gets me interested but I have also learnt that investing in growing trends can be a more likely success.”
And when looking at the UAE’s entrepreneurial ecosystem, passionate and committed investors is what he believes this region needs. “There is definitely a need for the collaboration between the government, universities, and businesses, to create those opportunities for startups to be successful, but another important ingredient which is sometimes overlooked is having quite a lot of investors willing to take risks to invest in early stage businesses,” Lowe says. “You need people willing to risk investing in ideas with very little hope that they are going to be successful. If you have all four of those ingredients, you have an environment where startups can succeed.”
Tamara Pupic is the Managing Editor of Entrepreneur Middle East.