The limits of unlimited movies

Box Office Lots of buzz this morning about MoviePass, a start-up hoping to bring Netflix-style all-you-can-eat subscriptions to the big screen. For $50 a month, MoviePass subscribers will be able to see unlimited movies in theaters using their smartphones as a ticket.

Using the MoviePass web app (native iOS and Android apps are in the works), subscribers can search for movies and showtimes at participating theaters, reserve their seat and then flash their phone screens at the box office when they get to the theater as proof of purchase. The service will initially be available only in the San Francisco Bay Area but plans call for rolling it out to other cities later this year. Users will be charged a $3 premium if they choose a 3D screening. The app will also let users pre-order the movie they just saw on DVD or VOD on their way out of the theater.

Will it work? It could, but I wouldn’t bet on it. For starters, fifty bucks a month is likely to be steep for all but the most avid moviegoers. The company says cheaper, “limited” passes will be introduced over time, such as four movies a month for $30. But that’s a very different consumer proposition — essentially a pre-paid plan rather than an all-you-can-eat subscription.

Netflix streaming works because it’s value increases with use. That’s not the case with a pre-paid plan.

Lowering the price for unlimited viewing could prove tough for MoviePass, however. While theater operators would likely welcome the increased traffic and concession sales that a lower subscription price will likely bring, they’re pricing flexibility is constrained by the upfront guarantees they have to provide the studios. Seats ultimately are a finite resource. Their number doesn’t grow as demand increases, so lowering the average price per seat would only undercut the theater’s ability to meet its guarantees.

MoviePass, of course, could create real value for the studios as well, by providing a platform to target committed moviegoers with trailers and other promotional messages, as well as driving DVD and VOD sales. Moreover, theater attendance in the U.S. has been declining steadily and alarmingly for several years, suggesting a fundamental erosion in the studios’ core market. Anything that might drive more people into theaters or expand the audience for mid-range and small movies that don’t get a lot of P&A support should at least be worth a look.

In short, the value proposition of going to the movies has gone out of whack as consumers’ entertainment options proliferate. Allowing theater operators the flexibility to experiment with strategies to improve that proposition is in the long-term interests of the studios.

Unfortunately, the studios seem to be trying everything but. Rather than deal with the decline in theater attendance, they’re trying to paper over the cracks by using 3D as leverage to raise average ticket prices (a tactic that is already producing diminishing returns, as BTIG analyst Rich Greenfield documents in the table below). They’ve toyed with creating a new “premium” VOD window by cutting into the theatrical window but they’ve over-priced that as well.

Finally, after years of blaming Netflix for “devaluing” their content, the studios are likely to balk at anything that smacks of bringing subscription economics to the box office. If theater owners want to experiment with it at their own expense that’s their business. But I wouldn’t expect a lot of help from the studios.