COGS: How I Bankrupted MoviePass

The TL;DR

This piece is part of our deep dive into financial metrics and their application. Previous pieces covered Revenue and Cash Conversion Cycle.
Today we are moving one line down in the income statement to Cost Of Goods Sold. COGS is far trickier than it appears and can act as an indicator of market power. In isolation, it is kinda useless but within the right context can be incredibly powerful.
Also, in case you missed the announcement, Adam Keesling has moved on from Napkin Math and Evan Armstrong has taken over as Lead Writer. (You can follow updates from Adam on Twitter or on his email list.)

MoviePass is my favorite business of all time. For a brief, glorious period between 2017 & 2018, the company sold an unlimited movie watching membership for <$10. All you had to do was pay the fee and you’d go see all the flicks your heart could possibly desire. My favorite theater in Mountain View, California sold a ticket for a leather recliner for 15 bucks. Essentially, MoviePass was selling dollars for cents. Unsurprisingly, people enjoy being given free things! Their subscribers jumped from 20,000 to 3,000,000 in the span of a year. All of my friends had it. We would go to Century Cinema 16 at least once a week just to chill. Each of us were easily costing MoviePass north of 60 dollars a month, all for the low price of 10 bucks.

As it turns out, giving away money for free is quite stupid. The company burned through tens of millions of dollars and collapsed by 2019. MoviePass is my favorite business because I, the consumer, happily took the clueless executives’ money for my own personal benefit. It was awesome for me, but it sucked for them.

Side Note: There is an argument to be made that MoviePass actually wasn’t a terrible idea! If they had been in the funding environment of today there is a chance they could’ve pulled this off. Get the audience big enough, add advertising on top, plus a pinch of price negotiation with theater companies, and there is a chance this is something. But alas, the Fed had yet to turn on the unlimited money spigot and MoviePass ascended above to the land of dead technology businesses in the sky (this is not the cloud).