Once a darling of the disruption crowd, MoviePass is no more; the stock is valued at zero… CEO and CFO have departed, the Board has resigned en mass …. the courts are holding the junk that’s left.
Investors are eager to plow vast sums of money into companies that offer “disruptive” products and services. Often the basis of this disruption is investor-subsidized predatory pricing or cash-burn machines.
They elbow into all kinds of markets and “disrupt” things. They include Uber and Lyft, WeWork, electric-scooter-rental outfits such as Lime and Bird Rides, but also big and mature companies with thousands of employees and billions of dollars in sales, such as Netflix and Tesla, or the entire shale-oil-and-gas sector. Bedding retailer Casper is now heading for an IPO, at a price that will give its prior investors a big haircut, with the goal of getting retail investors involved in its cash-burn strategy. The disruption is selling products or services below-cost and the hope that customers will remain loyal once shareholders refuse to continue to subsidise customer pricing.
It appears to be an unsound business model . When investors get tired of funding these types of consumer subsidies, and refuse to provide more fuel to burn, then the music stops, and companies collapse as price based “loyalty” collapses. This fate has now befallen the parent company of MoviePass – Helios & Matheson Analytics Inc. The company’s latest SEC filing notes that it and its subsidiaries MoviePass and Zone Technologies each filed for Chapter 7 bankruptcy.
Everything in MoviePass has gone to zero, even the top executives (interim CEO and interim CFO) and the members of the Board of Directors, who all resigned, according to the filing, and there is no one left to run the place, and there is no place left to run. It will be up to the court to pick through the debris:
As a result of filing the Petition, a Chapter 7 trustee will be appointed by the Bankruptcy Court to administer the estate of the Company and to perform the duties set forth in Section 704 of the Code.
The stock scam?
Starting in August 2018, Movie-pass shares went through a series of horrendous reverse stock splits to keep them dropping below $1 and to keep them from being delisted from the Nasdaq as they plunged. In February 2019, they were delisted anyway and have since traded over-the-counter. The shares had spiked to $8,350 (after stock splits) on October 11, 2017 apparently on the hype that Moviepass would disrupt the movie theatre business and the world in general.
At the time MoviePass offered a deal where for a fixed monthly fee of $9.95, subscribers could see a movie a day at any theatre. But MoviePass still had to pay the theatre the actual full retail price of the ticket. In many cities, a single movie ticket cost a lot more than the monthly subscription.
It was a fantastic deal for movie-loving subscribers, funded by investors, as the company burned through cash at a blistering rate. In the first half of 2018, the company was burning about $45 million a month subsidizing movie tickets. It then raised the subscription price to $14.95 and limited the number of movies people could see and it said it would pivot to make money selling user data, but everyone already had this user data, it was essentially worthless.
MoviePass wasn’t any different from other businesses (or ponzu-scheme) whose business model calls for selling goods or services below actual cost and that constantly need new funds from investors to keep going.
The theory is that this cash-burn strategy gives the company a competitive advantage over other businesses in that industry that have to make money and cannot therefore cut prices this far. With enough investor money to subsidize these companies, they can disrupt existing industries or create new niches.
But when investors get tired of throwing money at a cash-burn machine, the funds run out, and the fuel runs out, and the machine shuts down.
To avoid this fate, cash-burn machines need to entice investors by hook or crook to keep handing over their money and feel good about it. None have found a way of converting money losing market-share into a sustainably profitable business. I think the secret for many of these cash-burn machines is the “greater-fool” strategy; where they need to hold out the promise to current investors that there will always be future investors ready to bail them out with billions in new money. MoviePass just wasn’t able to perform this magic trick for long enough.