Did Helios And Matheson Analytics Just Change The Game?

On Tuesday, Helios and Matheson Analytics (HMNY) said that it would be increasing MoviePass prices, limiting the use of the service, and making other changes to cut costs and work toward profitability. The stock climbed early on, nearly doubling in value before falling to minimal gains as I write this article. While many may believe that Helios and Matheson just changed the game, the truth is that the wrapping may be prettier, but the package underneath is still the same old garbage. While this may delay the inevitable, I still believe that MoviePass will either need to be divested or the stock will fall to zero!

Big Changes At MoviePass

Helios and Matheson Analytics issued a press release on Tuesday announcing big changes coming to MoviePass. Here are the key changes that were announced:

From a subscriber-facing perspective, the company announced that it would be increasing the price of MoviePass from $9.95 per month to $14.95 per month. This price increase should happen within the next month. At the same time, the company will be limiting the use of MoviePass subscriptions, making subscribers wait 2 weeks to see first run movies that open on more than 1,000 screens unless availability is offered on a promotional basis. Also, there will be new measures put in place to reduce the abuse of MoviePass subscriptions.

Helios and Matheson Analytics also announced that, as of the third quarter, the company is generating between $4 and $6 per subscriber in non-subscription related revenue. The company is also working to improve revenue through the integration of MoviePass Ventures and MoviePass Films with original content, allowing the company to gain revenue by owning the film rights.

In a statement published with the press release, Ted Farnsworth, Chairman and CEO at Helios and Matheson, pointed to the change the company is working to bring to the entertainment industry, saying, “Over the past year, we challenged an entrenched industry while maintaining the financially transparent records of a publicly traded company.”

He also made it clear that he believes that the measures mentioned above will help to bring the company to profitability, closing out his statement by saying, “We believe that the measures we began rolling out last week will immediately reduce cash burn by 60% and will continue to generate lower funding needs in the future.”

Profitability Is Still A Long Shot

I will admit that on the surface, the update looks like a positive one that may actually help Helios and Matheson find its way to revenue. On the other hand, I urge you not to judge the book by its cover.

First and foremost, can you think of a streaming entertainment company that has increased its price by more than 50% in one jump? Sure, Netflix (NFLX), Amazon Prime (AMZN) and Hulu have all increased their prices in the past, but we have never seen any of these companies move prices by more than 50% in a single shot. Consider the price increase from a consumer perspective. Would you be willing to pay an extra $5 per month for a service that you are used to paying only $9.95 per month? Chances are that the crazy price increase will put an immediate halt on subscriber growth and send some subscribers packing. That’s strike one!

Next on the docket is the limitations the company is putting in place. The movies that consumers like to see the most are first run movies. People see the commercials for these films and wait until they are released, anticipating a blockbuster. Unfortunately, MoviePass subscribers will have to wait longer. 2 weeks longer to be exact. I can’t imagine that the wait will make any subscriber happy to be a MoviePass member. And here we have strike number two!

Finally, the increasing prices likely aren’t enough to cover the enormous losses that MoviePass generates. The average price of a movie ticket in the United States currently sits at $8.97. With the subscriber fee at $14.95 and non-subscriber revenue coming in at between $4 and $6 per month, per subscriber, MoviePass will generates between $18.95 per month and $20.95 per month in total revenue per subscriber.

Now, let’s say that the average subscriber uses their MoviePass once per week for a weekend movie. That brings movie visits per subscriber to 4.25 per month. At this rate, the average subscriber will cost MoviePass and its parent, Helios and Matheson Analytics, $38.12 per month. This means that at this rate, losses per subscriber will come to between $17.17 and $19.17 per month, even after the increase in monthly fees and non-subscription revenue per subscriber. Even at a more modest 3 tickets per month per subscriber, the company would be losing between $5.96 and $7.96 per subscriber. Even if all but one million subscribers drop the service as a result of the changes, the losses are still tremendous.

It seems like Ted Farnsworth already knows this as he desperately works to delay the inevitable here. Even his own statement, while parsed to be positive, had a negative connotation, solidifying the opinion that losses will still be generated in the future. Don’t forget, Mr. Farnsworth said that the changes announced Monday will “reduce cash burn by 60% and will continue to generate lower funding needs in the future.” While needs will be lower, funding will still be required to keep this sinking ship afloat as profitability is still a long way off.

HMNY Will See Further Declines

Although I can agree that Monday’s news will delay the inevitable for Helios and Matheson Analytics, it is not a remedy to the company’s issues. Even with these drastic changes to the MoviePass service, the company is headed for continued losses which will most likely turn into further declines in the value of the stock.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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