Will Apple's media streaming service learn from MoviePass' mistakes?

With Apple widely expected to unveil a new media service on Monday, it would do well to make sure it does not fall into the same traps that ensnared MoviePass.

MoviePass had the novel idea of selling movie theater tickets through subscriptions, guaranteeing payment with a virtual Mastercard debit card, and it almost worked. About three million consumers had signed up for MoviePass by the middle of last year, after the company’s 2017 price-drop for accessing unlimited movie tickets to $9.95 per month. But the concept proved to be unsustainable.

The biggest issue was that MoviePass didn't have the cooperation of the movie theaters that had to accept its card through Mastercard's honor-all-cards rule. And Apple is tiptoeing very close to that line as its announcement nears.

David Paul Morris/Bloomberg

Apple's new service is expected to be a competitor to the likes of Netflix and Amazon Prime Video, and even traditional cable networks. Like MoviePass, it might also launch its own payment card with Goldman Sachs. But as Monday drew closer, it became clear that several key partners were not yet on board.

In particular, Apple was still "racing to secure movies and TV shows" as of mid-March, according to Bloomberg. Big content companies like HBO, Showtime and Starz had not yet signed on board, despite Apple's best efforts. And since these companies have their own streaming services to sell, if Apple can't get them to be partners, they will see it as a competitor.

The history of MoviePass
MoviePass sells movie seats as a subscription, but pays theaters the full price of tickets. Its debit Mastercard is tied to geo-fencing technology within its app to ensure users are inside the theater at the time of the show. Parent company Helios and Matheson Analytics hoped to balance costs by aggregating high- and low-cost theater tickets. It also faced legal threats from AMC.

Losses mounted quickly and by August of 2018, MoviePass began restricting users’ access to movies and tinkering with several different pricing and movie-access plans. An exodus of subscribers and its own executives followed.

MoviePass has been aggressively reworking its model, and this month launched another in a stream of revised pricing plans, offering unlimited movies for $10 a month—with restrictions—and requiring users to pay for 12 months in advance. The service still relies on the Mastercard debit card, but a company spokesperson said MoviePass no longer offers e-tickets via its app.

Meanwhile, theaters chains including AMC and Cinemark have launched their own subscription-based services for movies, competing head-on with MoviePass’ concept. AMC's monthly program has more than 700,000 members after launching last June. Cinemark Movie Club is pushing 600,000 members and accounts for 10 percent of its total box-office receipts a year after its launch, the company said last month.

And there's nothing unique about MoviePass' model that others can't imitate.

MoviePass cofounder Stacy Spikes is launching a free-movie app through Kickstarter called PreShow, which relies on a virtual debit card to dispense movie tickets. Users must watch 15 to 20 minutes’ worth of video ads to earn a free movie ticket, and the app leverages facial recognition technology with eyeball-tracking to ensure users are actually watching the stream of ads.

If users look away from the screen during the ads, the video feed will pause until their eyes re-engage. Some commentators have compared the process to a “Black Mirror” episode. Kickstarter backers may begin accessing the service in July.

The Apple way
Apple has never been one to shy from a market challenge. It launched its Apple Pay wallet with what bankers have characterized as "the most one-sided agreement" ever seen, and saw retailers immediately shut off their NFC readers to protest Apple's mobile wallet.

It faced even greater challenges in Australia, where four of the country's largest banks petitioned for the Australian Competition and Consumer Commission (ACCC) to break Apple's control over the NFC function in its iPhones to let them compete by offering their own mobile wallets.

Eventually, major holdouts like CVS and Target got on board with Apple Pay. Though it took years, Apple was patient, and its patience won out.

Even more brazen: Apple didn't own the rights to the name iPhone when it launched the handset in 2007. The name "iPhone" belonged to Cisco — and Steve Jobs knew it, having requested use of the name from Cisco but offered nothing in return. Cisco sued, but the companies soon settled, and Apple kept using the name (as well as "iOS," another Cisco trademark).

Apple may want major content partners on board with its media service at launch, but it has never seen the need to get every piece in place by the time of its announcement. It was patient with Apple Pay and it was aggressive with the iPhone brand; both of these strategies may work for Apple where they did not help MoviePass.

What's left to learn from MoviePass
Apple is in a league far above MoviePass, but it can still learn from the startup's mistakes. Most notably: In revealing its strategy, Apple encourages other companies to copy it.

“MoviePass tried to circumvent the point of sale by enrolling customers as a third party for a service they didn’t directly own, and they ended up educating the theater industry on how to directly bill consumers through subscriptions,” said Richard Crone, a principal with Crone Consulting LLC.

There are many lessons from MoviePass’ debacle, Crone said.

“MoviePass used a debit card because the ‘honor all cards’ payment card principle meant theater owners had to accept the payment, but when customers complained that they weren’t getting what they paid for, Mastercard’s terms of service guaranteed a refund,” Crone said.

Embedding payments within services that stream entertainment content requires clear terms, and customer expectations for transparency are high, he said.

“MoviePass uses consumers’ payment card credentials in its app, but it has no direct integration with merchants, which means they have little control over access to the goods. There are a lot of lessons to be learned but ultimately theater owners—and other merchants—should be thanking MoviePass for teaching them what to do and not do with subscriber models,” Crone said.

MoviePass this month restated its earnings from the third quarter of last year, including subtracting about $6 million in revenue from the quarter ended Sept. 30, 2018.

The newest “Uncapped” movie subscription plan MoviePass offers includes restrictions on certain movies. On its website MoviePass said some films “may be restricted due to excessive individual usage which negatively impacts system-wide capacity,” and requires subscribers to reserve seats at least three hours in advance.

MoviePass' parent company also said the company plans to directly invest in movie production as part of a new business model.

So does Apple, with nearly three dozen programs in production, according to reports.