|1999 was downright quaint compared to this:|
From a Bloomberg Money Stuff email
|MoviePassMoviePass had maybe the greatest business model of the 2010s venture capital boom. The model was:|
You paid MoviePass $10 a month.In exchange, you could see as many movies as you wanted, in theaters.MoviePass had no particular deals with the movie theaters; it just went out and bought whatever tickets you wanted at retail prices.The retail price for a movie ticket was about $10. If you saw more than one movie a month — as you probably did, if you bothered to sign up for this service — MoviePass lost money on you. But MoviePass supposedly collected data! Data is valuable! I don’t know.This all worked out extremely poorly, as you’d expect — MoviePass shut down in 2019 and its parent company filed for bankruptcy in 2020 — but it also became legendary. “ The Entire Economy Is MoviePass Now,” Kevin Roose of the New York Times said in 2018: Real-world services (car rides, food delivery, movie tickets) were being provided below cost by nominally “tech” companies, funded by venture capitalists who were flush with cash and valued user growth above all else. If you sell $20 worth of movie tickets for $10, people will sign up, you will have rapid user growth and you can probably get someone to think that that’s valuable, even though in fact every user that you add costs you $10.
But — unlike most of the “MoviePass economy” — MoviePass was not actually a venture-funded startup, did not raise piles of money, and was somewhat constrained by economic reality. So at some point the company looked for ways to make this insane business model work, and it found one. It’s pretty simple: What if MoviePass collected your $10 each month and then, when you asked it for movie tickets, it ignored you? Then it could keep collecting your $10 a month without spending money on tickets. Eventually you’d get annoyed by not getting what you paid for, and you’d try to cancel your membership and get your money back, but MoviePass could ignore that too and keep collecting the $10. Giving people unlimited movie tickets for $10 a month is a good way to get rapid customer growth; telling people you’ll give them unlimited movie tickets for $10 a month, but not actually doing it, is a way to pivot to profitability.
When I describe it like that it sounds bad, but it was actually much worse! The way MoviePass ignored its customers was by changing their passwords so they couldn’t log into their accounts. Here’s a passage from a 2019 Insider article about MoviePass and its chief executive officer, Mitch Lowe, which we discussed at the time:
Per Lowe's orders, MoviePass began limiting subscriber access ahead of the April release of the highly anticipated "Avengers: Infinity War," according to multiple former employees. They said Lowe ordered that the passwords of a small percentage of power users be changed, preventing them from logging onto the app and ordering tickets.So part of me admires the gumption, sure, but that seems like … super-duper fraud? But here’s a U.S. Federal Trade Commission action from yesterday:
The operators of the MoviePass subscription service have agreed to settle Federal Trade Commission allegations they took steps to block subscribers from using the service as advertised, while also failing to secure subscribers’ personal data.They really changed people’s passwords so they couldn’t use the service, and their punishment is that they have to promise not to do it again. The complaint is madness:
Under the proposed settlement, MoviePass, Inc., its parent company Helios and Matheson Analytics, Inc. (Helios), and their principals, Mitchell Lowe and Theodore Farnsworth, will be barred from misrepresenting their business and data security practices. In addition, any businesses controlled by MoviePass, Helios, or Lowe must implement comprehensive information security programs.
“MoviePass and its executives went to great lengths to deny consumers access to the service they paid for while also failing to secure their personal information,” said Daniel Kaufman, the FTC’s Acting Director of the Bureau of Consumer Protection. “The FTC will continue working to protect consumers from deception and to ensure that businesses deliver on their promises.”
In its complaint, the FTC alleges that MoviePass, Inc.—along with its CEO, Lowe, as well as Helios and Farnsworth, CEO of Helios—deceptively marketed its “one movie per day” service promised to subscribers who paid for its $9.95 monthly service. ...
According to the FTC, MoviePass’s operators invalidated subscriber passwords while falsely claiming to have detected “suspicious activity or potential fraud” on the accounts. MoviePass's operators did this even though some of its own executives raised questions about the scheme, according to the complaint.
Under Respondents’ password disruption program, Respondents invalidated the passwords of the 75,000 subscribers who used the service most frequently while claiming that “we have detected suspicious activity or potential fraud” on the affected subscribers’ accounts. …They had formal business meetings about this, where they discussed the pros and cons of hacking their users’ accounts:
The password disruption program impeded subscribers’ ability to view movies because MoviePass’s password reset process often failed. … Indeed, when discussing the password disruption program, a MoviePass executive acknowledged that subscribers using a common smartphone operating system would encounter technical difficulty in resetting their passwords.
When subscribers attempted to contact MoviePass’s customer service about their inability to reset their MoviePass passwords, Respondents often responded weeks later or not at all.
On April 11, 2018, an employee of Respondent Helios, writing from Farnsworth’s personal email address and expressly “on behalf of Ted [Farnsworth]” to Lowe and others, proposed a notice that informed subscribers that their account passwords were required to be reset due to “suspicious activity or potential fraud.”Bizarrely, MoviePass settled without paying a fine — apparently due to a recent Supreme Court decision limiting the FTC’s ability to extract money for stuff like this — and one FTC commissioner dissented even from making them promise not to do it again.
Lowe circulated the proposed notice to MoviePass executives for comment and personally ordered subscribers’ passwords to be disrupted in accordance with this plan. Lowe also personally chose the number of consumers who would be affected by the program. …
When Lowe and Farnsworth presented the disruption program to other executives of Respondent MoviePass, one executive warned that the password disruption program “would be targeting all of our heavy users” and that “there is a high risk this would catch the FTC’s attention (and State AG’s attention) and could reinvigorate their questioning of MoviePass, this time from a Consumer Protection standpoint.” (Emphasis in original).
Another executive agreed, warning of “FTC Fears: All [the other MoviePass executive’s] notes about FTC and PR [public relations] fire are my main concerns as I think the PR backlash will flame the FTC stuff.” (Emphasis in original).
In response to these concerns, Lowe responded, “Ok I get it. So let[’]s try this with a small group. Let[’]s say 2% of our highest volume users.”
Respondents MoviePass and Lowe tracked the effect of password disruption on subscribers’ use of the service. For example, Respondents MoviePass and Lowe found that only one-half of affected subscribers had successfully reset their passwords one week after they executed their plan.
Coincidentally, today Kevin Roose has a Times column about how the venture-subsidized MoviePass economy has disappeared and companies like Uber now charge almost the full cost of their services:
There is still plenty of irrationality in the market, and some start-ups still burn huge piles of money in search of growth. But as these companies mature, they seem to be discovering the benefits of financial discipline. Uber lost only $108 million in the first quarter of 2021 — a vast improvement, believe it or not, over the same quarter last year, when it lost $3 billion, and both it and Lyft have pledged to become profitable on an adjusted basis this year.