VIDEO: MoviePass is trying to become the Netflix of movie theatres. But is the subscription service too good to be true?

LAS VEGAS – The owners of America’s movie theatres are having a few good months, with February’s “Black Panther” an all-time box-office winner and this weekend’s “Avengers: Infinity War” enjoying the biggest weekend opening ever – $250 million.

But that encouraging news conceals a more disruptive set of forces that threatens to undermine theatres’ conservative – and decades old – business model.

The main reason for chaos: A Netflix-style disruption from a fast-growing movie-theatre subscription service, MoviePass, that its executives say is a solution but many theatre owners see as undermining the industry’s future.

The debate over the service offers a window into how a long-standing industry weighs how radically to change its business strategy in the hope of long-term success in the digital economy.

Digital entertainment options are causing more people to stay at home, and the Motion Picture Association of America recently reported that Americans for the first time last year spent more on streaming entertainment than movie tickets. At the same time, the industry group reported that ticket sales fell to a 22-year-low last year.

Here at CinemaCon, the annual convention of theatre owners, much of the convention-floor talk centred on incremental changes such as better screens, improved food and seats that recline, the last of which has become a popular go-to.

The idea with all of these tweaks, which have drawn people to theatres even as they have sometimes increased sticker shock, is to give consumers added incentive to tear themselves away from that “Stranger Things” binge-watch.

But a more radical solution has come in the form of MoviePass. With the service, people pay $10 a month to MoviePass to see either four or an unlimited number of movies, depending on when they signed up. The company then pays the full cost of each ticket to the theatre.

MoviePass has taken the sector by storm, attracting nearly 2 million new subscribers over the last year. But as its executives claim to be sending scores of new customers to theatres, MoviePass has prompted worries in the industry about a devaluation of the movie ticket and a monopoly on customer data.

“We’re a big part of theatres’ revenue and very good for their business,” Ted Farnsworth, chief executive of MoviePass parent company Helios and Matheson, said in an interview. “It’s too bad they don’t see it that way.”

As they stood outside a theatre after a Warner Bros. presentation, two independent-theatre owners hashed out the question that’s been at the top of everyone’s mind this week.

“I like that someone else is advertising to customers and then paying for their tickets,” said Randall Hester, the owner of Hometown Cinemas in Austin.

“But they’re making it seem like the movie ticket isn’t worth anything,” said Amy Tocchini, who owns Santa Rosa Cinemas in Northern California. “And what happens if they go out of business?” she added. “What customer will be willing to pay full price then?”

The conversation is a microcosm of the debate among theatre owners. Last summer MoviePass slashed its price to $10 a month, betting that it would attract many new casual consumers – people who’ll pay for the service monthly but then barely use it, like a gym membership.

The move certainly attracted consumers: Farnsworth estimates that MoviePass will reach 5 million subscribers by the end of the year. Whether they’re casual is another matter. MoviePass says only 12 percent are frequent users and that many of the remaining 88 percent don’t go to the theatre often enough to cost MoviePass much money. “We could be profitable right now if we got rid of the 12 percent,” Farnsworth said.

He also said “there are things we can do to limit very heavy use” – alluding to a monthly four-ticket cap implemented last month; that switch appears as if it will become permanent.

Mining consumer-behaviour data is a possible revenue path for MoviePass. The company says it is able to associate fans of particular genres with their food preferences in a way that will allow MoviePass to promote, and ultimately share revenue with, local restaurants.

But four monthly tickets still cost MoviePass far more than they receive from a given subscriber. The average price for a movie ticket is about $9 nationwide and can easily reach $15 in major cities.

Many theatre owners shake their heads at the model, wondering about the long-term health of a company that needs to attract people passionate enough about movies to buy a monthly subscription but too lazy to take much advantage of it.

“I don’t see how they can sustain themselves,” said Hester.

A review of a prospectus by the website Business Insider and a University of Michigan professor found that the company is losing $20 million a month. Helios and Matheson’s stock has dropped from a high of nearly $33 in October to $2.50 at the end of last week.

In the meantime, few theatre executives seem certain about what to do in the face of MoviePass’ disruption. They veer between embracing it, fighting it and co-opting it.

AMC, the country’s biggest theatre firm, has been a critic of the MoviePass business model and got into a public tussle with the company when MoviePass pulled 10 AMC theaters off the service in January. AMC has not sought to pursue a subscription model of its own.

On the other hand, Cineworld, the U.K.-based company that owns second-ranked Regal Cinemas, has started an in-house subscription service across the Atlantic. It could introduce a similar program at Regal theatres. A spokeswoman for Cineworld did not make company executives available for this article.

Cinemark, the third-largest American theatre chain, has a subscription plan in place, albeit a modest one.

“It has gone significantly better than any of us expected,” Cinemark CEO Mark Zoradi said in an interview, adding that he wouldn’t rule out a more ambitious MoviePass-style plan down the road.

But MoviePass going under may not be welcome either. Nearly all fear what might happen if the service gains too many subscribers and then collapses, leaving customers unwilling to return to right-sized prices.

“A third-party subscription model teaches people a different value about going to the movies,” John Fithian, head of the Washington-based trade group the National Association of Theatre Owners, said in an interview.

Theatre owners also worry about a scenario in which MoviePass controls so many customers it can make huge demands for revenue-sharing and essentially hold the theatre owners hostage.

Thanks to franchises like Star Wars and the upstart phenomenon “It,” domestic box office in 2017 topped $11 billion for the third straight year; before 2015 it had never reached that plateau.

“We think this is a great time to be in the movie theatre business,” said Fithian.

Still, the numbers suggest that competition from digital entertainment is depressing ticket sales. Box office may have remained stable over the past several years, but that’s mainly due to higher prices. The number of tickets sold, known as admissions, actually dropped 6 percent in 2017, to 1.24 billion, according to the MPAA, the lowest in more than two decades. Admissions have dipped 9 percent over the past five years.

At stake is both an industry and the bedrock American tradition of leaving one’s home to spend two hours crying and laughing in the company of strangers. And without a more massive overhaul, it may be a matter of time before the digital shifts catch up with the industry.

“You have a 100-year-old business, a very mature business, and it’s going to change,” said Paul Yanover, president of movie website Fandango. “It’s just that no one knows how.”

Steven Zeitchik/The Washington Post

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