Interview: CEO Mitch Lowe Explains the MoviePass Business Model and Why Giving Consumers a Great Deal Is Now Mandatory
Mitch Lowe has had a front-row seat for the technological change that has transformed the entertainment industry. He was there in the early years of Netflix. He had his hand in the early development of the now-global company that started out as a humble DVD delivery service meant to take on Blockbuster before transforming into the streaming, and ultimately production, company that would change video as we know it.
“Whether it’s studios or movie theaters, they’re very nervous about any kind of price disruption, and to me it’s so silly.” – Mitch Lowe, CEO of MoviePass
Then Lowe moved on to become president of Red Box, the physical DVD and BlueRay rental service that offered a level of price and convenience that people couldn’t have previously imagined.
Last summer, in June 2016, he joined MoviePass. Now, serving as CEO of a company that offers a monthly subscription that allows people to go to as many movies in the theater as they want each month, he is trying to disrupt cinema. And in a recently announced move, the company slashed its prices to just $9.99 to see one movie per day in the theaters.
In a conversation with Finance Colombia, Lowe explains why the New York-based MoviePass has yet to truly take off and how its new recently announced pricing model may change all that. He also details why there is still room left for disruption in the entertainment world and why Hollywood should be very worried about the international filmmakers and creatives from Colombia to China who can now produce and distribute video more easily than ever before.
The conversation came in the lead up to Lowe’s upcoming keynote speech at Andicom 2017 in Cartagena. Next week, in the famous Colombian city on the Caribbean, he will join a host of other presenters, experts, and companies at Andicom, the country’s largest technology conference. As evidenced by his below comments on startup culture, the many emerging young tech entrepreneurs in Colombia can learn a lot from his mentality.
Jared Wade: Obviously you have a background with Netflix, one of the big disruptors to Hollywood. But I guess it actually really started out as a disrupter to Blockbuster as video rental service. If we go back to the beginning — when you just were trying to beat Blockbuster — how much did you guys actually foresee everything that has transpired since then?
Mitch Lowe: Well you know it’s actually really interesting when you look back at it. Remember, in 1998, when we formed the company of Netflix, we could have called the company “Movies by Mail.” But we called it Netflix because we knew eventually that movies would be delivered to the internet. But at the time we didn’t know whether it would be streaming or downloading. Studios in those days were still super-concerned about piracy and about their digital rights management (DRM) technology. And of course there wasn’t the bandwidth — the buffering technology — to be able to stream.
So, I guess we had a fairly good idea that DVD was an interim technology and a way to get into people’s homes. But we knew that it wasn’t the end all — it was simply a stepping-stone. The only thing we didn’t know was how we were going to deliver the movies.
Jared Wade: Right. So you were thinking ahead more than, say, Blockbuster was. I remember that at the time, with Napster, which was more about the music industry, the whole thing was “Let’s shut this down.” The companies weren’t thinking, “Let’s learn from this and then make our own model.”
“What I’m really trying to do for movie-going is the same thing that Netflix did for watching movies online.” – Mitch Lowe
Mitch Lowe: The beauty of being a startup is that you don’t have an asset that you need to protect. Therefore, you can kind of roll the dice and use your best hunch — from experience and knowledge and foresight — on where the market is going.
You’re not like Blockbuster that has to spend 80% of their time trying to protect the assets that they built. So you do have a bigger advantage with a startup in being able to not only just disrupt them but also disrupt yourself down the line. You can almost prepare for it by not building these systems in concrete that can’t move with the time.
I think it’s kind of a new phenomenon — since around 2001 — with companies being so thoughtful about how things will progress. And a lot of it is because we’ve seen the rate of change increase quite dramatically, so that’s almost a necessity.
Jared Wade: Now we’re much further into that post-interim period — we’re post-DVDs and into the streaming world. Do you think there’s still a lot more disrupting to be done in the entertainment industry?
Mitch Lowe: There is, but I think in a different way. I think there will be less disruption in the actual delivery and more in the types of content, the way content is created, and the devices that you consume it on.
People are getting shorter and shorter attention spans, and so the desire for shorter and shorter content is growling. That will drive all kinds of different creativity. There is potential there for a long series where you can develop characters and plots — but in small chunks. And I think, secondarily, people are becoming more and more comfortable seeing content on both the big screen as well as small screen — even seeing big screen content on small screens.
That will drive innovation and other types of creativity in how those devices actually display the continent. My hunch is that, over the next five or 10 years, that’s where most of the innovation will come. There will also be new business models.
There is a real big inefficiency in the way film is marketed. Especially for low-budget content, trying to find that one customer who’s going to love it is becoming increasingly expensive. So I think there will be innovation in marketing — and maybe to a lesser extent in how you pick the movie you want to see.
I don’t know about you, but that’s increasingly becoming a challenge: when you have so much choice and so many pieces of content. How do you find something that you’re actually going to love? It’s getting harder and harder.
Jared Wade: To use an old economic term, I think the means of production are also now somewhat democratized. People can’t make the Avengers, per se, but many more people can produce high-quality video content now. Do you see more innovation and change from a global perspective as well? Might we find out that places like Colombia, Brazil, and China — other places outside of Los Angeles — can actually produce the type of movies, shows, and content that more people want to see?
“Yes, we are definitely getting resistance and concerns. But the customer will always win in the long run if they have a choice.” – Mitch Lowe
Mitch Lowe: That’s what really excites me. Now — and Netflix has played a big role in this, now that they’re supporting local content for local customers — this content is finding its way back to other countries. It’s now it’s easier for us in the United States to see more Latin American content — not just the big titles and novelas. We’re actually able to see some fantastic film and television series made in Latin America.
I think the same thing is happening around the world. There’s this great cross-pollination of creative content that is easier to see. People are fascinated by Chinese content, by African content, by Latin American content even in completely other parts of the world.
And like you said, it’s now easier also that content to be created. The tough part, no matter where you are or where you content is headed, is the story. The technology is easier, but it still comes back to whether you are telling a compelling story that people are actually interested in. That has always been a tough thing.
Jared Wade: Now you are at MoviePass. How is that going currently, and what are the goals over the coming year? I know that since you’ve come on, the price point has changed and you maybe have found some new markets. But it’s still a rapidly developing company, so where do you see things now?
Mitch Lowe: What I’m really trying to do for movie-going is the same thing that Netflix did for watching movies online and that is making it easier to see a wider variety of content by making it more affordable and reducing the barriers to seeing independent content, foreign content, and documentaries. And it goes back to what Netflix — among others, not just Netflix — really did: They got people into this concept of being able to try stuff without any incremental costs.
Even though what we were really trying to solve was the late-fee problem — the anxiety built upon the pressure of returning the movie — the byproduct ultimately was that people started watching something they never would have rented from Blockbuster. Because there was no incremental cost of watching something that was “iffy” in their mind, people started exploring film. They started exploring genres, exploring directors. And it actually expanded people’s interest in consumption.
So at MoviePass, by creating a low-cost price to be able to go as many times as you want — it’s really Netflix for the movie theater — people are already starting to see films that they wouldn’t see otherwise. In fact, our customers are increasing, by almost 100%, the amount that they going to films that make under $20 million at the box office.
And for theaters, we’re getting people to go during the daytime and during the weekdays when there are tons of available seats. So it’s having a big impact, and now it’s a matter of launching a price point that it would be insane not to take. And we’re about to announce something along those lines.
(Ed note: This conversation took just before the public announcement of the massive price drop for MoviePass service. It now costs $9.99 per month and allows users to see one movie per day at most theaters in the United States. More details can be found here.)
Jared Wade: Has it been a big challenge to get these old-world, brick-and-mortar companies to see the same vision you’re seeing? I imagine they, at least on some level, are trying to protect every ticket dollar that they have. As a somewhat younger outsider who has seen the Netflix thing and seen the Napster thing happen, I would see their biggest problem as getting people to still want to go to the movie theater. I mean, there’s almost no reason to go other than the exclusivity of the first year or the spectacle of a blockbuster action movie where the theater experience is really different.
“The beauty of being a startup is that you don’t have an asset that you need to protect.” – Mitch Lowe
Mitch Lowe: Yes. You know, in almost every industry, the incumbents — the powerful players — are always nervous about new entities coming in. It goes back to the idea of a startup not having to protect an asset. They can come in and an essentially say: “What do customers really, really want that the incumbents, for one reason or another, haven’t delivered?”
If you look at the last 10 years, theaters have continued to raise their prices — roughly 50% — while ticket sales have dropped 6%. And you know from a consumer point of view they look at all the alternatives — whether online or Netflix or cable — the cost of that same content has been dropping dramatically. It really reminds me of Blockbuster. Blockbuster, had they been brave, they could have competed with Netflix. They just were terrified of giving customers the deal that they wanted.
And so we’re seeing the same thing. Whether it’s studios or movie theaters, they’re very nervous about any kind of price disruption, and to me it’s so silly because we just happen to you have a better grasp on what the customer wants and the ability to deliver it without having to protect a business. So, yes, we’re getting the same kind of resistance.
At Red Box, I ended up having to sue three studios because they refused to sell me product on the same basis as they sold it to Blockbuster. They said renting for a dollar a night demeans the value of movies. What they didn’t know was that I was making more for them per DVD then Blockbuster was. Because at $1 per night, the movie was rented all the time, whereas at Blockbuster it would sit on someone’s shelf for four or five days and then get return.
So, yes, we are definitely getting resistance and concerns. But the customer will always win in the long run if they have a choice.
Jared Wade: I know you joined in June 2016, but when did MoviePass actually launch?
Mitch Lowe: It actually started about four and a half years ago. It was founded by a guy named Stacy Spikes, who was the VP of exhibitor relations for Miramax. What he saw was how Netflix was expanding people’s interest in films. He was out there distributing films for Miramax that were generally tough to get audiences to see.
So he thought this would be a great way to get people interested in coming to the theater. He really had a great vision. But due to some funding issues and other challenges, they grew the company — but not at the rate that it really should have. And so I came in and invested back in June a year ago.
Prior to that, the former chief privacy officer on Facebook, a guy named Chris Kelly, had invested and become the majority shareholder, and he brought me in to run it along with him and really obtain the potential that a really does have.
Jared Wade: Do you think maybe some of the reason that it had not taken off quite as quickly was it was just too early?
“People who are consuming entertainment have so many choices and so many options. You have to offer them something amazingly compelling. It can’t just be an OK price.” – Mitch Lowe
Mitch Lowe: That could have been a part of it. But, you know, I spent about 13,000 hours working behind a video store counter — working one-on-one with consumers in the early video-store days — and one of the things I learned in that people who are consuming entertainment have so many choices and so many options. You have to offer them something amazingly compelling. It can’t just be an OK price or an OK deal.
You need prices and services that make people say, “Oh, wow, you mean I can have for movies for as long as I want and change them as often as I want and I just pay $19.95?” That was the first price for the DVD plan at Netflix. Or, with Red Box, “I can go to almost any location in America and rent a movie for a dollar per night and return it anywhere?”
That is what needs to be done with almost all the new entertainment services. They can’t just be an OK deal. That’s what we’re about to do: a deal like that dollar-per-night or like that $19.99 price at Netflix. So I think that held them back by not having that.
Jared Wade: Interesting, yeah. And just speaking from my own personal experiences, I know that I’m now just much more used to paying monthly bills for entertainment. I have Netflix, I have Spotify, sometimes I have Hulu — depending upon my income level at that time of the year. But I’m just kind of accustomed to having these different monthly bills now, whereas three years ago that wasn’t really something I was as used to. I went to the movies a lot, but it wasn’t really a budget line item for me. I went when I went, and it added up to a certain amount over time. If someone could offer me marginal savings — of $4 or $7 per month — is that really worth the trade-off of having another monthly bill? It wouldn’t have been three or four years ago. But it might be now.
Mitch Lowe: Right. Yeah, that’s very true. And more often than not, especially for young people with all these other alternatives, essentially every time they consider going to the movies, they most often talk themselves out of going. It’s like, “Oh it’s expensive” or “I can watch it on other devices in a few months” or “I don’t know if it’s any good” or “I got to get out of the house and get there.” The biggest obstacles of going to the movies is that’s going to cost 10 to 15 bucks and people saying, “I don’t know if it’s worth it” — and there are these other alternatives.
So we’re doing two things. One is that we’re getting rid of that obstacle. Now you can go to any movie you want at most any theater in the States, and there’s no incremental cost above your flat fee per month.
And then secondly is, slowly but surely, we’re creating an Uber-like experience where you never have to pull your wallet out whether you’re buying concessions or adding a friend. Everything is done on your phone. You pick your seat. You to pick your concessions and they’re all waiting for you. Or if it’s a service at the theater, they deliver the food to your seat. So we’re trying to create an experience that is much more modern and user friendly. And it’s taking time. That won’t happen over night.
“Blockbuster, had they been brave, they could have competed with Netflix. They just were terrified of giving customers the deal that they wanted.” – Mitch Lowe
Jared Wade: Looking more generally at Hollywood, it seems that everything is now much more about world box office. And you see things like Narcos and other productions that seem to be targeting the non-U.S. audience. Is this something you see growing more and more, especially looking at Latin America and, really, all emerging markets? Is this audience now being more valued because they have more purchasing power?
Mitch Lowe: Absolutely. I’d say the two strongest markets for entertainment are China and Latin America. And the great thing about Latin America is that it’s not just Mexico, South America, and Central America, but it’s also a significant market in the U.S. and in Europe.
Right after China, I believe Latin America, and content that appeals to Latin American people, is taken in the highest consideration when considering locations. It’s an avid consumer, and a discerning consumer, for entertainment. I think that trend will just keep growing.
Like I said before, the most exciting thing is local talent. And that’s about creating content not only for their own audience — but who better than Latin American directors and creative people to create content that will also appeal to the Latin Americans in the United States? So I think that’s a growing trend.