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Sinemia Shuts Its U.S. Operations; Will AMC's Stubs A-List Be Next?

Rich Duprey, The Motley Fool

The great movie ticket subscription service implosion continues: Sinemia recently announced that it will shut its U.S. service down immediately because the business model is unsustainable. Anyone watching the death throes of Helios and Matheson Analytics' (NASDAQOTH: HMNY) MoviePass service figured that out long ago, but does it mean that all such ticket subscription services are doomed?

After all, AMC Entertainment (NYSE: AMC) and Cinemark Holdings (NYSE: CNK) run programs that seem successful, and Sinemia was helping theater operators develop their own in-house subscription services because it says moviegoers like this new way of buying tickets better, and that a subscription platform can drive traffic.

The question is, are such services unsustainable too? Sinemia would suggest the answer is no.

Couple crying in theater

Sad! A movie ticket subscription service is closing down because of its unsustainable business model. Image source: Getty Images.

A better way to drive traffic

AMC Entertainment's Stubs A-List service certainly looks like a winner. The company recently said that as of the end of February, it had added 700,000 members in about eight months time. When AMC launched the subscription service, it had hoped to reach 500,000 members after a year. It now looks as though it will be able to almost double that number by A-List's first anniversary.

Cinemark's Movie Club program, although decidedly different that AMC's in that it offers one discounted ticket a month that can be rolled over (as opposed to three tickets per week), has also proven popular. During its fourth-quarter earnings conference call in February, Cinemark said the service had 560,000 active members, a 26% sequential increase over the previous quarter.

This could be why Sinemia doesn't seem to have shut down Sinemia Enterprise, the business unit that helps theater owners build their own subscription services. Movie house chains including Showcase Cinemas, Studio Movie Grill, and National Amusements (the media holding company that owns controlling interests in both CBS and Viacom) were among its clientele.

So, while Sinemia's ticket subscription service homepage now takes you to its closure announcement, the Enterprise site is still functioning.

Cutting out the middleman

The difference, of course, is that movie tickets from in-house programs can only be used at theaters in that chain, so AMC, Cinemark, and others are only playing against themselves when they sell a discounted ticket. And of course, they still pocket the full profits from concession stand sales generated by that extra subscription service traffic.

That, of course, is how MoviePass hoped to make money. It figured that while it might lose money on the sale of each ticket, it could make up the difference by taking a cut from theaters of their sales of popcorn, candy, and soda. Apparently MoviePass didn't expect theaters to balk at sharing a slice of their real profit-making revenue streams. MoviePass' insertion of itself as a middleman between AMC and its moviegoers led the theater operator to launch Stubs A-List.

MoviePass' business plan was terrible, and it lurched from idea to idea, limiting the movies that could be seen or access to the theaters where they were being shown. The company's new plan is to be a partner in new movies being produced and take a cut all along the way. Helios and Matheson is spinning off this service to help make the vision a reality, as well as to separate itself from all the negative publicity around its operations.

Sinemia wasn't immune from criticism, nor from a tendency to change plans midstream. It is now the subject of a class action lawsuit over using "bait and switch" tactics by imposing a host of additional fees to members, including those who prepaid annually.

The future of movie ticket sales

In a letter on its website announcing the cessation of operations, Sinemia essentially acknowledges that paying full-price for something you're going to resell at a discount is a shockingly bad business model, noting there was no "path to sustainability as an independent movie ticket subscription service."

At the same time, it highlights the superiority of theater-run systems because they have natural "cost advantage and cross-sell opportunities." Theaters are only discounting their own tickets, and they can use their membership lists to sell additional movies, merchandise, and concessions goods.

It always seemed a matter of time before these independent ticket subscription plans failed. Although they may have changed the way movie tickets will be sold in the future, there was never much hope they would be around long enough to benefit from the model's expansion. However, for AMC, Cinemark, and other theater operators with their own programs, ticket subscriptions should remain a growth driver.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool is short shares of CBS. The Motley Fool has a disclosure policy.