MoviePass is officially cancelled. A class-action law suit has been filed against the failed business prospect and their parent company, Helios and Mathenson is under deep fire. The lawsuit, filed by Jeffrey Braxton, was backed by 100s of investors who believe they were misled by the company’s original business plan. Let’s take a look at how MoviePass is how not to run a business.
At first, the idea was a great concept. A subscription service that allowed movies goers to be rewarded with lower prices the more frequently they attended theaters. The business plan, however, was not laid out in a profitable way. The service rolled out at $9.99, but the platform was not only plagued with glitches and bugs, but there was no way for the service itself to make money. The company ended up going into debt, as consumers realized the deal was too good to be true. And it was.
You have to not only have a product that fills a consumers need, or alleviates a pain point. MoviePass didn’t make it easier for people to go see movies, as they already had access to tickets. It served no other purpose than to give a discount to customers, and the public realized that. The company’s user base grew so quick and so fast that constant changes and updates had to be made in order to increase profitability.
But with the way our economy and the stock exchange works, is that the more hype a product or service garners, the more people are likely to invest in it. Attorney Mark Levine said the reason this lawsuit now stands is because the investors were misled about the business outlooks: “MoviePass’ business model was not sustainable because there was no reasonable basis to believe [it] could monetize the model to a degree that could be maintained before being too buried in debt to survive.”
The takeaway from this $100 million dollar loss is that you need to make sure your product fills a niche, but can also sustain its own cost. There was never a way for $9.99/month to ever be able to pay for multiple monthly movie tickets.
