U.S. Markets open in 6 hrs 49 mins

MoviePass Proves Great for Customers, Disastrous for Investors

Ben Fritz

Michael D’Ariano has saved a lot of money thanks to MoviePass. But he has lost even more.

As one of the more than 2.7 million subscribers to the service that lets people see a new film every day for just $9.95 a month, he has watched more than 40 movies this year.

The Bronxville, N.Y., salesman believes in MoviePass so much that he bought 1,000 shares of stock in its parent company, Helios & Matheson Analytics Inc., over the past four months. He thought it could be the next Netflix Inc.

His investment is turning out more like a grisly drama than a feel-good comedy. Shares in Helios have plummeted 93% since the end of January. Since May 7, they are down 68%, closing Wednesday at 68 cents.

“I’m saving $70 a month going to the movies and losing thousands investing in the company that’s letting me do that,” lamented Mr. D’Ariano.

Since slashing its monthly subscription price last August from as much as $99, MoviePass has built the kind of brand loyalty that most companies dream about. Users evangelize on what may be the best consumer value in America. On average, a movie ticket in the U.S. costs $9.16, according to an industry trade group, and much more in major cities.

For barely more than that, a dedicated MoviePass user can see every Hollywood release and several obscure independents or Bollywood imports to boot.

Some said the offer was too good to be true, an opinion that may now merit a “spoiler alert” warning. In its annual report, filed last month, the independent auditor for Helios expressed “substantial doubt” about its ability to continue operating.

MoviePass pays theaters full price for every movie ticket its members order, meaning that its core business is designed to operate at a loss. The company’s plan, executives have said, is to take advantage of a user base that has grown nearly 150-fold in nine months to sell advertisements and to persuade theaters to give them a cut of revenue.

Despite some successes, including email ads for the comedy remake “Overboard” and deals with small cinema chains, MoviePass lost $98.3 million on $48.6 million of revenue in the quarter ended March 31, Helios reported late Tuesday. In a regulatory filing last week, Helios, which generates more than 98% of its revenue from MoviePass, said it had only $15.5 million cash and $27.9 million of accounts receivable.

The revelation sent its already-struggling stock into a tailspin.

Helios Chief Executive Ted Farnsworth, however, wasn’t in crisis mode when reached by phone Friday at the Cannes Film Festival in the south of France, which he described as “a riot, one big party.”

He was seeking new films his company could invest in through its MoviePass Ventures, which buys stakes in motion pictures that it can market to its users. MoviePass Ventures already owns part of “Gotti,” a biopic of the crime boss starring John Travolta that premiered at Cannes.

Patrick T. Fallon/Bloomberg News Subscribers can earn reward points with Regal Cinemas each time they purchase a MoviePass ticket. Customers at a Regal Cinemas movie theater in Los Angeles.

He argued that the company has access to hundreds of millions of dollars through other means, including a deal to sell up to $150 million of new stock that, when announced last month, also sent shares plummeting. Recent changes, such as banning seeing the same movie twice and making some users upload photos of ticket stubs, have brought MoviePass’s monthly burn rate down by 40%, he said.

MoviePass is still on track to reach five million to six million subscribers by year’s end, he said, and is preparing for international expansion. He disavowed the company’s recent, short-lived move to let new subscribers see only four movies a month, interpreted by some as a cost-cutting measure.

“I let different people talk me into it,” he said. “Believe me, we’ll never run it again. I believe people in today’s world don’t want limits.”

That is the kind of assurance Kami Koren needs. Like a number of hyper-enthusiastic MoviePass users, she earlier this year set a personal challenge to see a different film every day. Most MoviePass marathoners eventually report that they have “basically seen every movie worth seeing,” as one wrote on Reddit.

But Ms. Koren, an Orange County, Calif., actress and “huge movie nerd,” hasn’t given up. She recently passed the 100-day mark and is aiming to make it a full year, a sometimes-arduous cinematic journey she chronicles on her YouTube channel “MoviePass 365.”

She has resorted to praying that MoviePass stays in business: “Every time I read something, I’m like ‘Oh my gosh, what if they end and I have to stop doing it?’ ”

Scott McCurdy, 69 years old, averaged less than one film a year in theaters his entire adult life, he says, until he got MoviePass last August. Since then, the retired federal courts employee has seen 136.

Like some other MoviePass users, Mr. McCurdy said he would still subscribe if it raised prices or limited the number of films he could see each month.

But if it goes away entirely, the Portland, Ore., resident says his new life as a cinéaste wouldn’t end immediately.

With every ticket MoviePass buys for him, he also earns points in Regal Cinemas’ rewards program. “I’ve got 10 free tickets banked, which would have cost far more to earn than I’ve spent on MoviePass,” he said. “It’s a funny deal.”

Write to Ben Fritz at ben.fritz@wsj.com

More From The Wall Street Journal