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February 22, 2018 • Volume 4


The long tail hits Hollywood, again

If you aren’t familiar with the startup MoviePass, you soon will be. It aspires to be the Netflix of the movie theater business, adding some energy to a segment of the entertainment industry that has languished because our TV screens are getting bigger and our in-home video entertainment options are getting better. Between 2002 and 2018, the number of movie tickets sold in the US has dropped by 21 percent. Increases in ticket prices have more than made up for this and revenue over that same time period is up 28 percent. In short, ticket prices are too high, so people only go to the movies for a sure thing [a recognizable blockbuster, likely based on a comic book]. 

The result is that movie theaters are pretty much deserted except for opening weekends for blockbuster movies. The movie theater is sort of like a micro version of a professional football stadium. It’s packed and vibrant a few days a year, but is sitting around sad and empty the rest of the time. 

Here’s how MoviePass works: Sign up for the service at moviepass.com and agree to pay $9.95 per month, automatically billed to your credit card. A week or so later, a MoviePass branded MasterCard shows up in the mail. When you are within 100 feet of virtually any movie theater, go to the MoviePass app, choose your movie playing THAT day, and a seat is reserved for that showing. When it’s time to go into the movie, hand your card to the cashier at the ticket window, the card is then charged (and the movie theater paid by MoviePass) and you’re free to go in and see your movie for no additional charge other than the monthly $9.95 fee that you’ve already paid. You can do the same thing again tomorrow, the day after, and on and on. 

According to MoviePass’ CEO, the company accounts for 1 in every 50 tickets sold in the US now. This CNBC clip explains the business model in more detail. The short version is that they’re hoping that we’ll buy popcorn and a soda. We’ll need to collectively buy buckets of popcorn and gallons of soda because when we go to the movie, MoviePass actually pays the movie theater the full retail amount of the ticket. I’ve said it before, I’ll say it again; it’s a great time to be a consumer. 

I signed up for this service a few weeks ago and I’m suddenly excited about going to the movies again. I watch the previews closely because I might actually go and watch one of these movies (rather than just 5 or 6 blockbusters each year that the wife and kids demand that I go to). It also takes the risk out of going to a movie that I might not like. If the movie is terrible, no problem. Just walk out. 

The fact that tickets can’t be ordered ahead makes it likely that I’ll need to wait a week or two to see a big movie. But it creates value from all of the empty seats in movie theaters Monday through Thursday and when there isn’t a new Marvel or Star Wars movie out. Video sales and rentals allowed movie studios to monetize movies when they were no longer in the theater.  This allows movie studios to monetize the long tail of a movie’s run before it leaves the theater. This is exactly what Netflix did with old TV shows and movie studios’ back catalogs, what Amazon is doing with Kindle Unlimited, and what the music clubs (Columbia House and BMG) did with record labels’ back catalogs. 

MoviePass’ business model is anything but a sure thing. But I think we can be confident that some derivative of this model (likely owned by individual movie theater chains) will take hold. AMC is apparently already planning to launch its own competitive service and it’s inconceivable to me that others won’t do the same. 

The opportunity that MoviePass is trying to create isn’t limited to movie studios and manufacturers of candy, soda and popcorn. How about a digital coupon in the MoviePass app to incent me to hit the Chik-Fil-A next door? What about the opportunity for on-screen advertising to larger movie audiences? 

Finally, all companies should think about assets that may be laying fallow that can be monetized: Cooking lessons during slow hours at my local Stop & Shop. Teach me to hang drywall during evening  hours at Home Depot. The opportunities aren’t just about utilizing unused space, they’re also about engaging consumers in new ways, potentially redefining a retail brand.

The white hot last mile

Retailers have made a dizzying array of announcements over the past few weeks, increasingly taking ownership of the last mile of order fulfillment. Amazon announced that in four markets, Prime Now will deliver Whole Foods’ orders to customers, and the Wall Street Journal reported that Amazon will be delivering in the LA market on behalf of other merchants. H-E-B, the Texas-based grocery retailer has acquired the Austin-based on demand delivery company, Favor, and Target shelled out $550 million for Shipt. Clearly, Amazon is at the root of all of these moves, having scared the bejeesus out of every brick and mortar retailer with its acquisition of Whole Foods. Delivery to the consumer used to be the exclusive domain of specialized shipping companies such as UPS, FedEx and USPS, but retailers are starting to vertically integrate with the intent of owning the last mile rather than outsourcing. Why?

  • Retailers are increasingly trying to differentiate with immediate delivery, which is not offered by the national third-party shippers  
  • Brick and mortar retailers are trying to leverage in-store inventory to increase the productivity of their stores  
  • Retailers like the idea of not supporting the profit margins of shippers  
  • Retailers hope that they can take advantage of integration benefits of owning both the store and delivery

The downside, though, to taking these services in-house is loss of scale. A company like Instacart, which serves many local retailers in a market has the opportunity to make more deliveries with each trip, and is more likely to have an order available to pick up near the last drop off point. Amazon, with more than 40 percent share of US sales, and a third-party marketplace composed of many retailers can certainly generate plenty of scale. The question, though, is whether any other retailer (the largest of which has one-tenth the market share of Amazon) has the scale of online orders to optimize costs.  

Target’s acquisition of Shipt is a hedged bet, in that Target intends to keep, and grow, Shipt’s list of retailer customers. The question will be whether these retailers will be comfortable working with a competitor-owned shipper.

My bet is that retailers not named Amazon will find that ownership of last mile delivery is expensive on a per delivery basis and a distraction when there are so many other things that warrant focus.   

About Ken

Ken Cassar is vice president, principal analyst at Slice Intelligence, where he looks at trends in the e-commerce industry armed with Slice’s robust set of online sales data.

Ken brings a rich online retail background to Slice Intelligence. Most recently, Ken was SVP, Media Analytic Solutions at Nielsen, where he developed several innovative digital commerce measurement and advertising effectiveness solutions. Prior to Nielsen, Ken was an analyst at Jupiter Research, where he was an early thought leader, trusted adviser, and media source on e-commerce. His prescient outlook on fledgling e-commerce industry was a key contributor to Jupiter’s dominance as a digital media zeitgeist at the dawn of the Internet.

Ken has an MBA and Bachelors Degree in Political Science from the University of Connecticut. Ken aspires to stay technologically ahead of his teenage children, as evidenced by his ‘Gadget Geek’ Slice profile. He also has the appropriate jacket for every occasion.