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Blockbuster deal! MoviePass buys Moviefone from Verizon

Hello! And welcome to Movie...Pass?MoviePass, the ticket subscription company, is buying Moviefone, the 29-yea...

Posted: Apr 5, 2018 9:53 PM
Updated: Apr 5, 2018 9:53 PM

Hello! And welcome to Movie...Pass?

MoviePass, the ticket subscription company, is buying Moviefone, the 29-year old movie directory service.

A lot has changed since Moviefone first started. It's hard to imagine now, but people used to call a number for movie times. Moviefone became so popular that its famous "Welcome to Moviefone" greeting was parodied in a famous "Seinfeld" episode.

Moviefone still has a website and app, but it retired the 777-FILM phone service in 2014. (Seinfeld's Kramer must be pleased. "Why don't you just tell me the name of the movie you've selected?")

AOL, now part of Verizon, bought Moviefone in 1999 for $388 million. But MoviePass isn't spending nearly as much to get Moviefone. MoviePass majority owner Helios and Matheson Analytics will pay Verizon only about $23 million for Moviefone -- $1 million in cash and a mix of HMNY stock and warrants worth about $22 million, according to a Securities and Exchange filing Thursday.

So why does MoviePass want Moviefone? MoviePass CEO Mitch Lowe told CNNMoney it wanted access to Moviefone's film and TV show content.

"Our subscribers want to connect with Hollywood and hear more about what's going on in the film industry," Lowe said. "They'd like to have MoviePass recommend movies to them and Moviefone is iconic."

Lowe, a co-founder of Netflix and former president of DVD rental kiosk service Redbox, added that he hopes the acquisition will be a "great funnel to attract new members" to MoviePass, which currently has more than 2 million subscribers.

Related: Can MoviePass be the Netflix of theaters?

Ted Farnsworth, CEO of Helios and Matheson Analytics, added that the marriage of MoviePass and Moviefone will hopefully lead to more advertising revenue.

"MoviePass is growing at warp speed. Put it and Moviefone together and it gives us more advertising opportunities," Farnsworth said in an interview with CNNMoney. "This is a great strategic move for us."

MoviePass arguably needs more ad sales to convince skeptical investors that its business model of buying tickets from theaters and then offering them to subscribers at a discount through monthly and annual subscription plans is viable for the long haul. MoviePass lets people see a movie a day for $7.95 a month -- it recently cut its price from $9.95.

Shares of Helio and Matheson Analytics have plunged nearly 55% this year. Investors are worried that MoviePass won't be profitable anytime soon.

Part of the problem? We live in an era of so-called peak TV. Netflix, other streaming services and big cable TV networks are churning out more and more quality shows that eat into the time people have to go to movies.

Investors also worry that the big chains that MoviePass currently buys tickets from -- AMC, Regal and Cinemark -- may eventually look to cut out MoviePass and launch their own subscription services or other lower-priced deals.

Regal, which is now owned by UK-based Cineworld, has experimented with charging more for tickets during peak movie times and less at times when attendance tends to be lighter. Think of it as Uber-style surge pricing, but for movies.

And Cinemark unveiled Movie Club, a monthly plan that lets people buy a movie ticket a month for a discounted price of $8.99, last year.

Related: MoviePass CEO says unlimited movie service is leading to huge growth

That deal obviously isn't as good as the one a day plan offered by MoviePass. But Cinemark will also allow Movie Club members to roll over unused tickets every month, bring friends at the lower price and offers bargains on concession stand items.

Lowe isn't too concerned about competition though. He said he's convinced that MoviePass will continue to work closely with the big chains -- even if Wall Street is nervous.

"We have to prove we are a driving force in getting more people into theaters. We have to try and put our money where our mouth is," he said.

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