Moviepass - Get One

I saw this thread, but I never looked at the business model. It's the same upside down business model that is fueling hundreds of ghost companies (and some market darlings) in an incomprehensible way.

MoviePass is burning through cash -- cash it is able to borrow because we are in a manipulated environment. It said yesterday that it has passed 2 million subscribers. And the more people it signs up, the more money it loses (and the more borrowed cash it has to burn though). This is the exact conversation I was having about Netflix on another thread. These schemes work because of a decade-long intervention by central banks that destroyed price discovery in our lending markets. It's cheap to borrow and it is plentiful -- no lending standards that a freely operating market that could accurately price risk without the distortions would impose. So you get companies like this.

We are seeing very early signs that this is changing. The Federal Reserve is trying to gingerly remove some of its support to the debt markets which has suppressed yields. It hasn't done much of anything yet, but the prospect is what is behind the recent sell off in risk assets. You do still have other central banks expanding their balance sheets for the time being to suppress yields, but they would like to finally step back. And the debt markets are starting to take it seriously, and the yield on 10-year bonds across the globe have risen dramatically over the last several weeks.

What that means for MoviePass? Its accountants warned it that its long-term viability is in jeopardy. You can not rely on losing money on every product you sell, and borrowing endlessly to keep the company going. If yields REALLY spike, the cost of servicing the large amount of debt you accumulated gets more expensive and that is when you see cracks. ... and defaults. I didn't realize it, because this is one company I hadn't really looked at, but these financing schemes without regard for generating positive cash flow through self-sustaining businesses are going to characterize a lot of the last decade, and people will look back and shake their heads.

That doesn't mean that I am saying that a company like this can't somehow reinvent itself and make itself viable. But what I am saying is that the business model that is predicating what they are doing would be incomprehensible in debt markets whose price discovery hadn't been destroyed. The company would never have existed. There are a lot of ghost and zombie companies out there (all over the world) like that which are examples of the "survival of the unfittest" environment they have created.

Here is a Bloomberg story for anyone interested: MoviePass Tops 2 Million Subscribers While Cash Burn Accelerates

For those of you who signed up. ... congrats. You spotted real value. They were selling you something at a cost well below its actual value. You were astute enough to take advantage. ... and it's at their expense (and ultimately it will be at the expense of anyone who lent them money at artificially low rates that didn't reflect the actual risk inherent in that business model).