Emergent Opportunities: Coming to a theater near you.


At any given day, there are hundreds if not thousands of startups attempting to disrupt some industry or the other. Fortunately for us, this gives us access to several historical and modern-day examples of such Disruptors to learn from – Walmart, MinuteClinic, Tesla, Netflix, Amazon, Warby Parker, etc. Learning from those past examples gives us the knowledge and tools we would need to identify and avoid our own enterprise from suffering the same fate the incumbent. In addition to avoiding disruption, we can proactively implement strategies within our own enterprise that can help transform ourselves to accept, adapt and adopt the emergent opportunities.

While the past examples are great, what could really help us reflect on what we have learnt is an example that we could look at today that’s in its early stages, where an incumbent is threatened (better someone else than us) so that we can predict how it could play out (for all involved) and then watch it play out as it happens.

It just so happens that such an opportunity has presented itself in the form of MoviePass vs AMC/Theaters.

MoviePass

MoviePass, originally launched in 2011 offering a monthly movie pass for $30/month – dropped its pricing mid-August 2017 to $9.99 / month plan that allows you to watch a movie a day in at a movie theater near you (extra for 3d/Imax – 91% Theater coverage).

With matinee pricing averaging $8 – $11 – if you watch more than 1 movie a month, it’s a no brainer that this saves the consumer money and on the flipside since MoviePass buys these tickets at full price – they lose money on every customer than sees more than 1 movie per month – and the only two (major) exceptions to this all-you-can-watch buffet is that you cannot see the same movie more than once and you can only see 1 movie per 24 hours.

Netflix is one of my favourite modern disruption and I think this is because it’s continued its innovation engine beyond what most of us would have expected an “e-business” to do – Online DVD’s to Streaming to Original content; another similar one is Amazon.

Looking at how Netflix turned out and if used that to look deeper into what could happen with MoviePass, we could end up with a Plan A; followed by a Plan B.

Plan A

Should MoviePass survives the initial bleeding and continue to grow subscription and captures additional funding it has to focus on reducing the cost per subscriber. This can be fairly straight forward:

  • As it is with the excitement of a new buffet – Many will try to watch 1 per day, eventually going to 1 every other day, down to 1 per week, and eventually 1 every other week. The reality is that the # of new movies that come out per month that someone would want to invest 2 hours in, are not that many – this should be expected behavior normalizing over time.
  • If it does end up with a very large customer base – it should be able to obtain discounted tickets – it is currently buying tickets at full price. Theaters do sell at discount via Costco, Sams, BJ’s – etc, so yes, it’s possible and this further reduces its acquisition cost.
  • Many theaters are dated and the ones who have upgraded are usually playing on their 3D and IMAX screens – MoviePass is $9.99 / month with an extra $10 per month if you want to see IMAX or 3D.

For the sake of coming up with a number, we could be looking at a subscriber watching 1 – 1.5 movies a month. With this alone, MoviePass makes money long term even though initially it costs them more; we can chalk this up as customer acquisition costs.

Using its large customer base to negotiate better ticket pricing and again, it increases how much it can make per subscriber.

With most subscribers wanting to watch the movie when it comes out (and it plays on an IMAX or 3D screen), the Avg. Subscriber Value goes up, again increasing what it makes per subscriber.

So, what has Moviepass done? So far it has made the cost around the “theater experience” predictable and the transaction a bit more straight forward. And if we were naive, we would say that this is all they want and that they will be content with the money they make on the subscriptions – but we are not and if we were a movie theater operator/network once MoviePass has grown into a massive subscription base – we should be scared.

Plan B

Now looking at where Netflix ended up once they started with “Online DVD Rentals” – you could expect the following things to happen:

  1. With a large subscriber base – MoviePass opens and sets up its own theaters based on subscriber population, and patterns/behaviours of those subscribers.
  2. A movie theater is an awesome experience – Moviepass could work with Netflix and license any of its amazing Originals for showing at a MoviePass theater; in addition to the usual Blockbusters.
  3. Moviepass enhances its memberships with concessions, family members, etc.

Every one of those items in Plan B increases revenue and as it executes point 1 – 2 and 3 and offers a well-integrated experience and product, over time traditional theaters that charged “too much” will be replaced by MoviePass theaters – which operate via a monthly subscription.

Reaction

Wait – this has not all happened yet, so now, if you were in AMC’s or some other major theater chain, you could say “We can avoid this” – MoviePass did not just drop its price to $9.99 from $30 for no reason – keep in mind that they’ve had 6 years to pivot and learn what works and what doesn’t. There must be something to subscription based pricing and we should take advantage of this “Emergent” opportunity to transform our business today.

Sadly, the response from the incumbents is what one would expect as history repeats itself – where they call such efforts “distractions” or that “we will be fine” (looking at you BlackBerry) – And AMC is doing the same thing now.

While we cannot predict the future, should MoviePass continue to grow without competition from the incumbents who continue to downplay or ignore the opportunity, Plan B will be inevitable once Plan A is successful and today’s theaters will find themselves disrupted, tomorrow.

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