Shows with legs – – more background on the Netflix thread (and an excuse for a Friday post of MeTV promos)

[corrected -- Dragon hears "nonrival" as "nonviable"]


I've probably spent too much time on this thread already, but one of these days I ought to do a post on just how problematic the Netflix exclusivity model is, how it goes against the well-established but deeply weird economics of certain nonrival goods. (When increasing supply increases demand, things get very strange very quickly. Insert highly appropriate Twilight Zone reference here.)

For now, we'll focus on one specific corner of the topic, television shows that maintain a viable and highly lucrative syndication presence for decades, often actually growing in popularity since their initial run. I'm not talking about programs that form the basis for reboots or reunions or sequels, but of shows where the original episodes continue to draw large viewerships.

We could have a long interesting discussion on the psychology behind the appeal of the familiar. You probably coulld even come up with a few pretty good research topics on the subject, but I want to keep the focus on the business side. Television became a national mass medium in the late 40s. Within its first decade, it started producing shows like I Love Lucy and Perry Mason, now both over 60 years old, which would continue to maintain a surprisingly steady audience to this day.

The return on investment of these programs is stunning. With a handful of exceptions, all of the following shows turned a nice profit during their original network run. Everything since is gravy.


I Love Lucy

Perry Mason

Leave It to Beaver

The Twilight Zone

The Andy Griffith Show

The Adams family/the Munsters

Bewitched/I Dream of Jeannie

Star Trek

MASH

Columbo

Taxi

The Cosby show (until recently)/Roseann (until recently)

Golden Girls

Cheers/Frasier

Seinfeld

Friends
.
The Simpsons

.Married with Children

Law and Order/CSI/NCIS

And many others.

Nobody understands the economics of these shows better than Weigel Broadcasting, the company that almost single-handedly developed the entire terrestrial superstation segment of the industry. One of the keys to their extraordinary ratings success has been their knowledgeable and affectionate treatment of the material and their respect for their audience.

From Chicago Magazine:

Still under family ownership more than 40 years after its inception, Weigel Broadcasting stands as the last independent television outfit in the city and one of the last in the country. So while the network affiliates in town (WBBM, WMAQ, WLS) blare forth with new, expensively created fare, Weigel’s channels beam with Sabin’s intuition and pluck. “Neal is doing the best television in Chicago with the least amount of resources and the toughest obstacles,” says the former Chicago Sun-Times columnist and local television/radio sage Robert Feder.

Nowhere does this come through more than in their stations promos.

Here's Carl Reiner's reaction to one.



.

Here's more from Feder on Weigel's promos.

And here are a few more favorites to close the week.




[And yes, I believe that may be the same set.]

Trump and testifying

This is Joseph

There have been a lot of calls for president Trump to testify about his actions in office, for some pretty understandable reasons.  However, this seems to misunderstand the way that the modern US criminal justice system is designed.  Here is a great twitter thread explaining it.  My favorite part is:

Making incorrect statements has been a source of many easy convictions from what I can tell.

This is not to say that this is a good system.  I am especially sad that federal agents may lie and suspects face criminal jeopardy for any statements that they make that are not perfect.  Heck, it may even be an innocent error on the part of the investigator that they think you are lying about.  Guess who faces charges for this innocent error?

So I do think that I would like to hear the president defend his actions and I worry greatly about the optics here.  But saying "just tell the truth" has the risk of misleading people into thinking that they shouldn't consult extensively with a lawyer first (which to be fair, the president does have one) and that the situation is not one of extreme danger.  I was impressed with how Peter Strzok refused to commit to exact numbers without his case files.  Because if he had made a mistake, recollecting events over a year ago, he might have been charged with perjury or making a "material false statement".  He was a law enforcement professional, which Donald Trump is not.  Not are you and I.

So I do think that we should be very clear about how it is not incriminating to avoid interviews with law enforcement (the point of the 5th amendment), especially given the way that the legal system works.  Has anybody not seen this video yet?

So I do want to have explanations for all sorts of things.  But I can totally understand why agreeing to an interview with a prosecutor is both a) risky and b) enormously time consuming (in terms of careful and relentless preparation).

Revisiting the Big Swinging Check Syndrome

From Wikipedia

Season		Episodes		Originally aired		Nielsen ratings
				First aired	Last aired	Rank	Average viewers (millions)
	1	22		September 23, 2013	May 12, 2014	6	14.95[14]
	2	22		September 22, 2014	May 14, 2015	14	13.76[15]
	3	23		October 1, 2015	May 19, 2016	22	11.19[16]
	4	22		September 22, 2016	May 18, 2017	30	9.25[17]
	5	22		September 27, 2017	May 16, 2018	42	8.41[18]

This is another bit of context to keep in mind when following the Netflix thread.

Tuesday, September 2, 2014

Netflix and the big swinging check syndrome

Another post in what what was supposed be a fairly brief Netflix thread. I want to move on to other topics, but this latest news item was just too good an example of certain bad trends in journalism to pass up.

You may have seen the following news story earlier:

Netflix Acquires ‘The Blacklist’ For $2 Million An Episode

EXCLUSIVE: In what is believed to be the biggest subscription video-on-demand deal for a TV series, I’ve learned that Netflix has acquired the rights to hit NBC drama The Blacklist from Sony Pictures TV in a deal that will net $2 million per episode. I hear Season 1 of the series starring James Spader will debut on the streaming service next weekend. As for future seasons, Netflix usually makes them available shortly after the season finales.

Sony TV first tested the off-network market waters for The Blacklist in March. While other streaming services, like Amazon and Hulu, do joint syndication deals with cable networks, Netflix, which largely pioneered the series SVOD business, insists on getting first dibs. Twentieth Television just recently sold New Girl to TBS and MTV, more than an year after prior seasons of the Fox series landed at Netflix in a rich deal, said to be worth $900,000 an episode. Like was the case with New Girl, I hear Sony TV has the right to also sell The Blacklist in cable and broadcast syndication, with Netflix getting an exclusive first window. The $2 million per-episode fee is said to be the biggest for an off-network series paid by Netflix (or any others streaming company), eclipsing previous record holder, AMC’s The Walking Dead, whose sale price to Netflix is believed to be $1.35 million per episode.

For starters, you will notice that the headline is somewhat misleading. Netflix did not "acquire" the Black List in the sense that, say ABC would have. The show will still be running on NBC next year. Nor did it acquire the rights to stream the episodes during the regular season; those will presumably stay with Hulu. What Netflix did acquire was the right to stream the previous year's episodes.

Furthermore, if you hit a few relevant Wikipedia pages and do some quick back-of-the-envelope calculations, you will see it is difficult to see how Netflix can justify this price-per-episode to its shareholders or how Sony could have negotiated it.

It is the nature of television, whether broadcast or streamed, that while the quality has a way of tapering off after a few years, the commercial value tends to increased sharply once a show has established itself. As a rule of thumb, it is not until programs approach 100 episodes that you start talking real money.

Just to put things in perspective, while a long running, syndication friendly, proven hit like NCIS can bring in over $2 million a year. That is very much an upper bound. The Blacklist is years away from having a viable syndication package. Even when it gets there, its serialized elements will probably keep it from making the really big bucks. A forty-four million dollar deal one year into a series run is extraordinary. It is almost inconceivable that Sony would not have settled for much less.

I realize that the following point should be too obvious to bother with, but the object of business is to bring in as much money as possible while sending out as little as possible. If Netflix just paid $44 million for something which they could've gotten for 20 or even 10, this would indicate a fundamental lack of confidence by the management of the company.

Here though, we get into one of the great paradoxes of modern business journalism. From a strictly logical standpoint, the best run businesses are, almost by definition, those which do the most with the least. From an emotional standpoint, journalists are most impressed by those executives who spend extravagantly without apparent hesitation.

For lack of a better word, the willingness to sign large checks is seen as a sign of virility. The bigger the check, the more positive the impression it makes on the reporters covering the story. The soundness of the purchase does not matter, nor does its positive or negative impact on the executive's company.

Netflix has long been something of a joke within the entertainment industry for its tendency to pay more than top dollar for properties that have already been turned down by everybody else and yet Reed Hastings' reputation as a visionary business genius simply grows stronger.

Along similar lines, when Mark Zuckerberg paid an exorbitant amount of money for a company the New York Times simply gushed with enthusiasm, even though it was later revealed that the primary selling point of the company was the fact that the founder threw awesome parties.

Hastings and Zuckerberg may stand out but that doesn't mean they aren't representative. Executives, particularly tech executives, are routinely lauded for big, bold deals, even when those deals make no sense from a traditional business standpoint. Like so much business coverage we see these days, what is presented as rational analysis is a series emotional reactions to charismatic personalities, catchy narratives and the reflected glow of great wealth.

What does Netflix really want? Look at the content quadrants

To make sense of the company's approach toward original content, it is useful to think in terms of long-term IP value vs the hype-genic, those programs that lend themselves to promotion by being awards friendly or newsworthy. For example, a talk show would be in the high hype/low IP quadrant. You have famous people saying topical, interesting, sometimes even important things. The articles pretty much write themselves, but in terms of IP, the genre has a shelf life somewhere between a ripe peach and a properly refrigerated gallon of milk. After over 60 years, the best anyone has managed to do is package a few low rated, niche programs for nostalgia channels out of the absolute cream of the genre. The same goes for art films like Beasts of No Nation and documentaries like Icarus (and no, the bump in IP value that Oscar bestows is not worth what Netflix paid to get it). Easy to book the creators on Fresh Air but don't count on any real viewership five years from now.

By comparison, as previously mentioned, the bulk of the Netflix children's slate has no IP value whatsoever. Since journalists outside of the entertainment industry have little interest in the segment and no understanding of its importance, this falls in the low hype/low IP quadrant. Licensing high name recognition kids shows is essential for building the subscriber base, but it is strictly a short-term investment.

When you start categorizing the various shows according to quadrant, keeping in mind the additional goals of building the subscriber base and not spending money too wastefully (even Netflix has its limits), you can't help but notice that the distribution is not at all consistent with what you would expect given the stated goals and strategy of the company.

We can quibble over some of the classifications. Despite its coult status, Stranger Things arguably falls into the high/high quadrant. What about the Crown? Historical costume dramas have sometimes proven to have legs, but the record is mixed and it's difficult to see how Netflix will ever compete with BBC catalog.

Quibbles aside, it is fairly obvious that Netflix has a strong preference for shows that are easy to promote and that a significant portion of their original content budget (and presumably virtually all of their remaining content budget) is going toward shows that contribute little or nothing to the content library. If Netflix really is playing the wildly ambitious, extremely long term game that forms the basis for the company's standard narrative and justifies incredible amounts of money investors are pouring in, then this distribution makes no sense whatsoever. If, on the other hand, the company is simply trying to keep the stock pumped up until they can find a soft landing spot, it makes all the sense in the world.

"Hype is the fog of business" or "you should've known something was up when Netflix bought the billboard company"

How do you decide if a business scenario is viable? What heuristics do you use? How do you form your informal informative priors? How do you decide the necessary conditions for success have been met? Obviously, there are endless possible answers for these questions, but most probably fall under the general categories of looking for things you would associate with success, growth, drive, and competence.

Consider Netflix. The scenario that has been put forth to justify the extraordinary market The company has recently reached is that it has a reasonable chance of achieving a near monopoly of online media distribution. This would seem to be an unbelievable claim but it does have what we might call heuristic support. Things we can all observe which make the arguments seem somewhat more credible.

Though Netflix is a notoriously secretive company, there are still a number of established facts that back up its case. The subscriber base is undeniably large and growing. The company has an excellent reputation and fantastic name recognition. Its shows generate a tremendous amount of buzz and you can't argue with all those Emmys (actually, you can, but more on that later).

There is, however, one piece of context which is absolutely essential for understanding these indicators of success and yet which is routinely underplayed or omitted entirely from the conversation. Netflix has taken hype to a new level.

To be clear, no one would ever suggest that the entertainment industry is a PR virgin.
Planted news stories, awards campaigns, "creative decisions" designed solely to get attention, the fairly open quid pro quo that drives almost all entertainment journalism. None of the techniques that Netflix uses to promote itself are new, but the scale is unprecedented.

Obviously, some of this has to be inferred, but the inferences are all straightforward and largely undeniable. To live in LA particularly west of the 110 and north of the 10 is to be besieged by outdoor advertising for Netflix, particularly around the longer and longer Emmy season when it seems that every available surface will bear the letters F YC.

Likewise, you can draw fairly reliable inferences about PR spending by looking for certain kinds coverage. If you see a cover story, and interview, a what's on [client's name] tonight article or anything that reads like a press release, the odds are very good that it was either initiated or nurtured by a PR agent. Here too, Netflix has taken old approaches and pushed them to a new level.

We also need to take into account indirect PR, business decisions that are nominally made for some other reason, but have the real purpose of generating buzz. Everyone does this, but, once again, Netflix goes much bigger. The company spent hundreds of millions of dollars promoting art-house fare like Beasts of No Nation and documentaries  like Icarus (ass far as I know, Netflix was the first to mount “best picture”level Oscar campaigns in the documentary category). Though thrse are deserving films, in terms of viewership, their marketing budgets are impossible to justify, but if your objective is getting journalists to talk about your company, it's money well spent.

Netflix also has a history of commissioning award bait shows going all the way back to House of Cards. Emmy awards play a special role in this process. Within the industry, they aren't taken all that seriously. Their impact on viewership has long been question and increasingly who gets the nominations and awards is seen as a function of who's willing to pony up the big campaign budgets. (This point was beautifully illustrated when Tatiana Maslany couldn't get a nomination despite incredible buzz and reviews. It was only after the snubs became news that she broke through).

None of this is intended as a criticism of Netflix. Marketing and self-promotion are a part of the game and you can't blame the company for being so good at it. The ads and carefully cultivated press coverage help drive subscriber growth and support the narrative that makes the skyhigh stock prices possible. You can hardly fault management for increasing revenue and maintaining market cap. You can, however, blame analysts and journalists who fail to recognize the impact of this unprecedented marketing and PR push and who casually throw out references to buzz and Emmy awards as if they meant anything at all in this context.

A few moments with Dick Cavett

I've got a post coming up about the IP value of various TV genres. At the very bottom are talk shows which can pull great numbers initially but which have been almost worthless when syndicated or repackaged as anything more than low rated nostalgia fare.

That's not to say that some of these shows aren't worth watching (lots of good TV isn't particularly marketable TV).  Cavett holds up remarkably well, especially when he had a geenuinely interesting guest.

Here are a few notable examples.


The Dick Cavett Show Richard Pryor 12 16 85






Richard Burton on The Dick Cavett Show July 1980




This Marlon Brando interview is extraordinary and is one of the best examples you'll ever find of handling an uncooperative subject.




Truman Capote

Health Care and the poor

This is Joseph.  And I am confused.

Jon Chait:

The state-level Republican crusade to deny the Medicaid expansion also hurt insurers. Medicaid wound up soaking up costly patients, freeing insurers to cover a healthier population. (Two studies found this result.) That’s why, Solomon confirmed to me, “in most states [insurers] do support expansion in my experience.” The clear and consistent pattern is one of Republicans repeatedly threatening insurers, to the point of withholding payments they were legally owed, in order to prevent poor and sick people from getting insurance. It is bizarre that Ackerman concludes that the GOP doesn’t actually care about denying insurance to the poor and sick (a goal it has in fact pursued fervently) and instead cares about profits for insurers (a goal it has in fact undermined relentlessly).

This really does seem to be correct.  If profits were the goal, then this strategy seems to be an odd way to go about it.  It is true that there could be a larger goal in mind that suggests short term pain to keep health care profits high, but it sure is not a direct link.

It also suggests that we are heading towards some sort of tipping point in the United States.  Health care costs are getting higher and higher.  Regulations generally prohibit cheap substitution (you can't create a clinic with non-MD/RNs to service those who can afford nothing more) in the health care market and pricing transparency is low, making comparison shopping hard. It seems like a mild regulatory approach is unpopular and unsustainable, given the political polarization.

One way or another, there are some interesting times ahead.

The dangers of Twitter

This is Joseph, stealing Mark's normal beat.

It seems Elon Musk tweeted that he had buyers lined up to take his company private at $420 per share.  Really.

The surprise tweet comes as Mr. Musk’s long-combative stance against Tesla’s short sellers has grown testier in recent months. He has repeatedly used Twitter to chide investors who are betting against his company, sometimes offering vague positive outlooks for the company that seemed to boost the stock, hurting short sellers’ positions.

This highlights one of the challenges of social media, as it is not impossible that this news could affect short sales.  So it is very, very important that he really have this funding lined up. 

Josh Marshall points out that this could go wrong. 

I think that this is a challenge of social media platforms, where this type of news can be rapidly sent out without the normal slow vetting of traditional media outlets.  This might all be fine, but it seems to create a lot of possible problems for Tesla, which may not have been obvious at the moment that the tweet was made. 

SCOTUS game theory

This is Joseph

I want to talk about this tweet in terms of game theory:

What I am interested in is whether this would ever be a good strategy.

So, first of all, would this work.  Well, if the "doctrine" was followed, it would allow whoever won the 2020 election to name Ruth Bader Ginsburg's replacement.  So the main advantage, in this scenario, would be to make the Republican party look good, by showing how they are a party of principal.  That seems an odd goal for a sitting justice to try and make a partisan organization look good as a goal.  The open seat would motivate liberals, but it would also motivate conservatives and act as a unifying force in both coalitions.  I am not sure that this helps liberals, on net.  It might hold together the conservative coalition, under tough conditions, even more so.

If the "doctrine" was ignored then there would be another Republican nominee to the Supreme Court, meaning six of nine justices were nominated by Republicans.  Insofar as this matters, and people act like it matters a lot, then it is a major win for the Republicans.  After all, what is the point of delaying the appointment of a new Supreme Court Justice at the end of Obama's term if there wasn't some sort of benefit?

It also seems to deeply misread the psychology of the justice involved.  If she wanted to lock in her side, why would she not have retired at 81 (like Anthony Kennedy) and given Obama a clear shot at naming a successor?  Clearly, she feels competent to do her job (and the evidence that she can is compelling) and doesn't like to play these games with timing her retirement.  Fair enough.  If she did decide to play games, why would she do it in order to maximize the gains of the Republican party at the cost of liberals?  You can say what you want about Donald Trump, but he has not been a noted feminist firebrand and a lifetime of fighting for gender equality seems to position one to not want to go out of one's way to hand him another nomination.

Finally, the five year plan actually makes a lot of sense for a justice who is trying to be non-political.  This has her retiring in 2022 or 2023.  Long enough before the end of the next president's term that confirmation should happen if it is possible at all.  It's well before anybody has any idea who the next president will be and so it cannot be motivated by partisan considerations.  The opening is still part of the election discourse, but not in an immediate way that pulls oxygen away from the issues.  It's a good plan.

So I don't see how switching to a 2020 retirement would be a more optimal strategy.

Mark?

Kevin Drum on Medicare for all

This is Joseph

This as a remarkable development:

The libertarians at the Mercatus Center did a cost breakdown of Bernie Sanders’ Medicare for All plan and concluded that it would save $2 trillion during its first ten years

(via Kevin Drum)

There is some nuance here:

 There is the rub. The federal government is going to spend a lot more money on health care, but the country is going to spend about the same.

“Lower spending is driven by lower provider payment rates, drug savings, and administrative cost savings,” Yevgeniy Feyman at the right-leaning Manhattan Institute told me. “It’s not clear to what extent those savings are politically feasible, and socially beneficial.”

(One concern is whether cuts to prescription drug spending would discourage medical innovation. It’s simply hard to know — Mercatus projects a $61 billion drop in drug spending in one year, but there would still be hundreds of billions of dollars spent annually on medications.)

But, that said, it is a remarkable inflection point.   Sure, making health care less profitable would slow the pace of innovation but there are already some issues with how the market focuses innovation.  There is a lot of social good in new generations of antibiotics, but these tend to be underdeveloped in a system that rewards chronic disease medication discovery.

At a certain point you need to wonder just how large would be disincentive effects be (it is a big world), could we change drug patent rules to mitigate the impact, and could we invest in drug research directly, say via the national Institutes of Health.  Because half of that 2 trillion dollars in savings might well fund the best research environment imaginable . . .

The biggest problem is structural -- how do you redirect private health care spending into taxes?

One thought that I increasing wonder about is whether this should be a state level program.  Canada requires all provinces to have a Medicare program, but allows significant differences between provinces.  I am not convinced a single federal program will drive innovation as quickly as 50 separate states all trying to puzzle out the best way to make it work.

Really? This was actually advanced as an argument?

This is Joseph

How does one even parody this?

At the same time, the draft says that people will drive less if their vehicles get fewer miles per gallon, lowering the risk of crashes.

If the goal is to discourage driving by making it more expensive, there are an entire suite of carbon tax, gas tax, and congestion tax proposals that I think bear looking into.  These will recue driving and make everyone safer.  Or what about cheap bus service?  These big and heavy vehicles are pretty safe for their passengers and tend to have better safety records than single occupancy vehicles.

What if we reduced parking in cities?  Would that not make people drive less?  Or banning cars altogether?

I mean if the goal is to get people out of cars, why would decreasing fuel efficiency standards (to make the gas cost per mile less) even be in the top ten reason?

Now I know that the argument is also to make the cars cheaper (so people buy kore modern cars) but the wonderful thing about a super-high gas tax is that you could use some of that money to reduce tariffs and sales tax on new cars.  Everyone wins.

The thing with cars is that there is an efficiency (in terms of transport) and safety trade-off.  We can rethink it, but this seems like the worst policy decision to make in order to accomplish the stated goal.

Socialism and its sub-textual meaning

This is Joseph.

I want to start with this tweet:

And then point out this article:

The reason this generation of democratic socialists are willing and able to do that is not simply that, for some of them, the Soviet Union was gone before they were born. Nor is it simply that this generation of democratic socialists are themselves absolutely fastidious in their commitment to democratic proceduralism: I mean, seriously, these people debate and vote on everything! It’s also because of the massive collapse of democratic, well, norms, here at home.

Part of it also might be that programs that are quite compatible with a primarily capitalist country are labeled as socialist.  It's a devastating critique when the Soviet Union, and all of it's human rights abuses is around, but it runs the risk of making the label . . . non-specific.

In any case, I think it is pretty clear that almost any functional government with control some aspect of the economy: by printing currency, buying military equipment, or enforcing laws.

The interesting debate is where does government have a comparative advantage.  Clearly full state control of industry would be bad.  But does anybody see the medical market as completely libertarian?

Food for thought.

Netflix Exit Strategies -- Comcast?

I apologize for writing these out of order, but one of the lessons I've learned as a blogger is that, if you want to speculate on something, get the post up quick because events have a way of moving faster than you could imagine and a position can go from bold and provocative to yesterday's news overnight.

For that reason, I want to jump ahead in the Netflix thread to exit strategies. Right now the company is sitting in a classic corporate throne of Damocles, king of the world but with a sword dangling over its head. Having a market cap bigger than Disney's is wonderful, but that stock price is based almost entirely on a highly questionable narrative. How do you gracefully cash out in such a situation?

One possibility I'd like to open up for discussion is some kind of merger or acquisition with Comcast (with the question of who would be acquiring whom rather bizarrely up in the air). There is something of a precedent here with AOL Time Warner, but Netflix and Comcast are a far better fit.

The two companies already have an extremely close working relationship. As previously mentioned, in the all important children's division, Netflix is largely dependent on licensing properties from the NBC/Universal library. NBC also produces (and apparently owns) one of Netflix's highest profile shows, Kimmy Schmidt.

Netflix also desperately needs guaranteed access to a major content library. We currently have a thread going about how the "plan" for Netflix to produce its way out of this problem is unworkable and probably insincere. Though not on par with Disney or Warners, NBC/Universal does have such a library.

The Disney Fox deal means that the House of Mouse now owns a controlling interest in Hulu. This has got to leave Comcast feeling somewhat out in the old. Pairing up with Netflix would put the company roughly on an even footing with its rival.

And finally, with the uncertain future of net neutrality, the business logic of the partnership is even stronger.

I'm writing and posting this in haste so I well may end up repenting it in leisure, but if we are on to something, I'd very much like to be to say you heard it (and discussed it) here first.

More on transit from Alon Levy

This is Joseph

This tweet thread by Alon Levy is worth reading in full.  In particular:

Tech has been extremely successfully in solving a specific class of problems.

That said, the real issue is that US transit has some serious limitations and challenges.  Alon goes on to talk about how both New York and DC have let their transit system degrade.  Trying to limit transit expansions and improvements may work on the margin, but the ultimate issue is that roads (or air-lanes or whatever) need to be regulated as public goods. That makes every transit discussion inherently political.

I also want to highlight Matt Yglesias' response:

I think that this take is right on.  Paradigm changing is all well and good but it does make sense to build on the firmest foundation of best practice for transit.

Checking in on MoviePass

MoviePass Hikes Subscription Fees, Limits Access to Films

The company is strapped for cash and has introduced a series of measures that it hopes will keep itself solvent. They include jacking up the prices from $9.99 to $14.95 per month over the next 30 days, as well as limiting access to nearly all Hollywood blockbusters within their first two weeks of release. The company’s parent company, Helios and Matheson, said these steps will reduce its cash burn rate by 60%.

But the company still faces major questions about its sustainability. On Friday, MoviePass borrowed $6.2 million, including $5 million in cash, in order to stay afloat and meet its financial obligations. Beginning on Wednesday, its creditor can ask MoviePass to pay up to $3.1 million of the money it borrowed.

Monday, May 14, 2018

Yes, we're losing money on every transaction, but we have a plan to increase volume

[Apologies for letting this one sit in the queue for so long. I plan to do a fairly long post on the various absurdities of this business plan, but I realized that the company may not be able to wait for detailed analysis. Therefore, I'm just going to hit a couple of high points in this and an upcoming post.]

I suspect that most people (maybe especially those who read this blog) have become thoroughly jaded to bad business plans running on new economy hype and Silicon Valley money. Many of you probably feel that you seen it all before, that you have lost the capacity to be shocked by how stupid an idea can be or by how many millions it can raise.

I more than sympathize. In a world where Tesla is valued higher than General Motors and Bitcoin is... well, Bitcoin, it is difficult to come up with the topper. That said, sometimes a piece of business logic, while perhaps not the stupidest or the most overvalued, nonetheless manages to stand out through a blinding lack of self-awareness.

Many companies have used the losing-money-but-making-it-up-in-volume argument over the past few years, but I don't know that I've ever seen it stated in quite such naked terms.

From an interview with Mitch Lowe, CEO of Moviepass.

[David Pogue] The math doesn’t really work out, does it? Let’s say you go to the movies twice a month. In New York, that’s $360 of movie tickets a year — but you’re paying MoviePass only $120 a year. MoviePass is losing $240 a year, just on you. Multiply that by MoviePass’s 2 million subscribers, who are currently buying 6% of the nation’s movie tickets. How is that sustainable?

...

Pogue: You must go through your life explaining how MoviePass works. And everybody says exactly the same thing back to you…

Lowe: Which is, “how can you possibly afford such an amazing deal?”

Pogue: Yeah. How do you make money?

Lowe: There’s two groups of people that go to the movies. There’s 11% that go 18 times a year, and they buy half of all the movie tickets in the country. 5.5 billion tickets.

There’s another 200 million people (89% of moviegoers) that only see the blockbuster hits. They go to four maybe five films a year. They see “Star Wars” and the Marvel films. Our product is priced to reactivate those casual moviegoers, to get them to go see the great independent films that now they say, “I’m just going to wait and stream at a later date.”

...

Lowe: People have told us they’re starting movie clubs, and now they’re going with a bunch of friends, going to the movies every week together and then going out afterwards. We have a guy who said, “I’m going to turn 40. I’m going to go to a movie for 40 days in a row leading up to my 40th birthday.” But what’s even cooler is people are seeing films they never would have seen without a MoviePass card.

Pogue: But I’m confused about that, because every time someone goes to a movie, you’re losing more money. Don’t you secretly prefer people who don’t use the card as often?

Lowe: They [the people who see a lot of movies] become more valuable to us. They evangelize the service. They become more valuable to our partners, the studios, exhibitors.