The “I Hope They Sign Up And Never Use This” Business Model

I signed up for MoviePass. It works like this. You pay a monthly fee of $30 and you can see unlimited movies. No “blackout” dates or anything like that. At my location, movies are $8-$11 dollars, so if I see four movies in a month, I’m saving money. The savings go up the more movies I see. If I see less, I’m losing money. I see quite a few movies, so I figured I’d give it a shot.

How did they get every theater in the country to get on board with this? They didn’t. They send you a Discover card in the mail. You have to go physically “check in” (via a mobile app) at the theater. They say you have to be within 100 yards but I was able to check in from 2.8 miles away. You choose what movie and which showing, then buy your ticket with the Discover card. Works great.

I would think the card is somehow locked to only allow this one particular purchase. I didn’t try to buy popcorn with it or anything. I suspect it might just have a really low limit and time-lock though.

What is strange about this business model is that the people that love your service the most are your worst customers. The people that essentially forget about it are your best customers.

If someone goes and sees 10 movies in a month, MoviePass loses about $70 on that customer. They love MoviePass, but MoviePass doesn’t love them.

If someone has a really busy month and sees zero movies, MoviePass earns $30 from them. If this happens regularly, they might decide to cancel their account, in which:

After the 30 day trial period, the user will be charged a $20 cancellation fee to terminate their account

You also have to send them an email asking to cancel. But hey at least you don’t have to call.

That customer that doesn’t like you very much is your best customer.

Health clubs are the same way. They couldn’t operate if they didn’t have a large base of customers who pay monthly and never show up. If every last customer showed up, they wouldn’t have enough room to fit them in the building.

I don’t think I ever want to run a business like that. I want my best customers to be my best customers.

Update

On November 20, 2012, they updated the cancellation policy:

If you decide to cancel MoviePass within your first month of membership, you will be charged a cancellation fee of the difference between your monthly MoviePass rate and the total dollar amount of the movies you saw. If you’re paying $30 dollars a month for MoviePass and you saw 5 movies at a cost of $10 each, you would pay a $20 cancellation fee. If your subscription fees are more then the cost of the tickets, you will be credited back the difference.

After your first month of membership, there will be a flat cancellation fee that is based on how long you have been a subscriber. The breakdown is as follows:

If account is cancelled within months 2 or 3, cancellation fees are $75
If account is cancelled within months 4, 5 or 6, cancellation fees are $60
If account is cancelled within months 7, 8 or 9, cancellation fees are $40
If account is cancelled within months 10 or 11, cancellation fees are $20

A little complex, but at least it makes sense.

Comments

  1. Donovan says:

    I like the premise, but would add just one detail that might change the conclusion slightly. A cinema’s best customers are those that turn up and buy the popcorn, regardless of whether they’re paying per month.

    Great site design btw, I’m loving the font choices.

  2. Brian says:

    Great point.

    I always thought the same of the cable companies business model. Most offer a cable+internet+phone package at a substantial “discount” (if you call $100+/mo a discount) for the first twelve months. Then after the first year, your bill becomes $150+/mo (at least!). So they reward their most loyal, long-time customers by substantially increasing their bill.

    As every year goes by, I hate my cable company more and more and continuously debate whether to “cut the cord” and go with an internet TV solution. They need to stop being greedy and realize their days are numbered if they continue on with this model (and web TV’s become more widely adopted).

  3. Tom Lewek says:

    Interesting thoughts, Chris and it certainly seems like they would be losing money off their most loyal users. Perhaps there’s more to the story, I wonder, if they have special deals worked out with theaters or film companies. I’d be curious to hear what MoviePass would have as a rebuttal, or any other business model that works this way.

  4. Interesting thought.

    Very similar to the “I hope they register for this SaaS trail and forget to cancel it for a few months” Our company offers a 30 trail for our SaaS application but we don’t tether users with a credit card requirement.

    The interesting thing about this business model is that one can assume by its closed registration they are very aware of this fact and wait for a base of dormant users to add more to the system.

    I completely agree with your closing statement “I don’t think I ever want to run a business like that. I want my best customers to be my best customers.”

  5. Chad Calhoun says:

    I’ve listened to a podcast by Tony Hsieh discussing how he used that same practice with Zappos. Their customer support will stay on the phone for extended periods of time and they encourage doing that if it’s needed to keep the customers happy. While, having your best customers as the ones that may cost the most to the company can be bad, Zappos sees those customers as the ones that speak well about your company and spread the word to others. Essentially it takes the form of advertising via paid word of mouth.

  6. James says:

    Sounds like big hosting resellers fit that bill too… and “truly unlimited” data plans. Not such an uncommon business model when subscriptions meet intangibles.