Theaters face a power struggle as digital takes over

MoviePass, the mobile app that allows users to access one theater movie ticket daily for a $9.95 flat monthly fee, has withdrawn from 10 of AMC’s popular theaters, resulting in a standoff between the country's largest theater chain and the digital subscription service that MoviePass says drives the majority of AMC's revenue.

Why it matters: The same economics problem that led to the collapse of the newspaper industry, and that's currently haunting cable, is also happening to the theater industry: Viewership (in this case, admissions) is down, but the average price of movie tickets continues to climb.

• Theater admissions fell 6% in the U.S. last year to 1.24 billion, the lowest admissions rate since 1995, according to the National Association of Theatre Owners.
• Stock prices for nearly every theater chain are down, with the exception of Regal. (See above.)

Digital home viewing and price increases have forced theaters to strike distribution partnerships with upstarts like MoviePass in order to retain admissions. That power dynamic is causing angst amongst theater chains.

“We have been driving tens of millions of dollars to the big three (Regal, AMC, Cinemark) and all we’ve been asking for is small portion of incremental profit, but they continue to just believe they can take all the advantage but not share in the wealth ... We can’t keep doing that.”

Lowe says the company brought in 1 million tickets for AMC last month alone. “By the 4th quarter this year, we will be three times larger than we are now — meaning we’ll be buying three million movies a month for AMC theaters.”

Sources say MoviePass has pulled some AMC distribution in an effort to push viewers to other theater chains in which they have stronger revenue sharing agreements with concession services (popcorn, etc.)

• Lowes argues some theater chains simply don’t want to engage in talks about sharing some of the increased profit margins.
• AMC dismissed MoviePass as "a small fringe player" earlier this year. Meanwhile, Ted Farnesworth, CEO of Helios and Matheson (which owns MoviePass) says, "Since the get-go, AMC has not been interested in collaborating with MoviePass."

• MoviePass claims it's responsible for the majority of AMC's revenue. Farnesworth says the company represents roughly 62% of AMC’s operating income (assuming that AMC is flat year over year).

The news comes as MoviePass continues to skyrocket in growth, surpassing 1.5 million annual subscriptions in January.

• Lowes says the company's mega-growth is expected to continue at a faster rate. "We're looking at continuing to add 80-120,000 new subscribers a week — putting us at close to five million subscribers by end of the year."

Digital on-demand consumer habits have put pressure on the theater industry, whose long-standing position as the largest movie distributor is being threatened.

• Reports surfaced last year that some of the major movie studios, like Warner Bros. and Universal Pictures, were negotiating deals with Apple and Comcast to offer audiences digital versions of movies two weeks after their theatre releases.
• The theater chain and studio businesses have been unable to reach a deal that would let studios distribute more expensive ($30+) digital movies to viewers at home shortly after their release in theaters.