MoviePass was even shadier than we thought

The service’s most devoted users were apparently getting scammed by the company.

Remember MoviePass? Remember that brief, glorious period during which 3 million of us paid about 10 bucks a month to see whatever movies we wanted to in theaters? Remember how the service sounded like it had to be too good to be true from the start, and in the end it was? Remember how we felt like it simply had to be some kind of scam?

Well, we were right. There’s no doubt the MoviePass era — which peaked in early 2018 — was, in retrospect, a halcyon period for habitual cinemagoers. Apparently, it was also a period defined by scammy behavior and possible fraud: The New York Times reported on June 8 that, according to recent accusations the Federal Trade Commission made against MoviePass, there was a whole lot of questionable business going on. And some of it seems pretty illegal.

If you went to see only one or two movies a month using MoviePass (or, of course, if you never subscribed at all), you may not have been aware of any weirdness before the service finally shut down in 2019. But for people who used their subscription in a perfectly reasonable manner — seeing up to one movie in a theater per day, as explicitly permitted by the service’s own terms and conditions, at least until it started changing things without warning — MoviePass started to get glitchy long before the end.

Tickets for certain movies wouldn’t be available, or they’d be subject to a “premium” fee. Your password might be mysteriously reset, thanks to some kind of “unauthorized activity” on your account. Perhaps you were told you’d been randomly selected to upload a photo of your ticket stub via the app for “verification,” but then the app wouldn’t work, and your account would be shut down. Or you’d try to cancel your subscription, only to find it had been reactivated without your permission.

MoviePass subscribers who started to feel gaslit by the service’s signature red debit card weren’t alone — and now we know their instincts weren’t wrong, either.

The FTC has since discovered that many of MoviePass’s hassles and hoops were intentional. As reported by the New York Times, MoviePass on June 7 agreed to settle with the FTC over accusations that the company knowingly deceived its most active customers in order to cut its own costs.

A brief reminder of how MoviePass worked: At its peak, you’d “buy” a movie ticket at a regular kiosk in a theater lobby, using the specially branded MoviePass debit card to “pay” for it. The machine would spit out a ticket (theoretically, anyhow), and you’d go see your film. Meanwhile, MoviePass would reimburse the theater for the ticket’s full cost, which — depending on where you were in the US and the time of day — started at $9 or so, and up to $17 in a market like New York City. Every month, MoviePass charged you a subscription fee of about $10. In essence, MoviePass was selling deeply discounted tickets to its customers.

As I detailed at the time, this was an obviously unsustainable business model, but MoviePass’s presumed endgame was to rapidly grow its customer base by dramatically dropping its subscription price to less than that of a single movie ticket in nearly all markets — the service had cost as much as $50 per month in previous years — and then throw its weight around with potential advertisers and partners. The price drop came after data analytics company Helios and Matheson bought MoviePass, and the company did raise eyebrows for hinting at plans to mine and even sell its subscribers’ data.

It was also likely, as I wrote, that MoviePass was banking on the age-old glossy magazine strategy of selling steeply discounted subscriptions in order to attract lucrative advertisers who want to reach a large subscriber base. In MoviePass’s case, it seemed the service hoped to approach movie studios and theater chains with proposals for partnerships, business relationships, and profit-sharing agreements, as well as to leverage its huge user base in making those deals. Indeed, some of its business moves confirmed this.

However, MoviePass’s success always depended on cementing those big moneymaking relationships before it exhausted its own pool of money, since the company was effectively taking a loss on every customer who signed up. And when it came to subscribers who used the service a few times a month (or a few times a week, as some people did), MoviePass was losing a lot of money.

So it tried to slow down its power users, which the FTC’s complaint suggests it did in three different ways.

First, beginning in April 2018, MoviePass invalidated the passwords of about 75,000 power users, claiming that it “detected suspicious activity or potential fraud.” That was a lie. And when a customer tried to reset their password — a very reasonable thing to do — they’d run into technical problems. Either they’d be sent to an invalid link to perform the reset or they wouldn’t receive a reset email at all, or the reset link wouldn’t accept their email address as valid. Coincidentally, MoviePass’s famously bad customer service would then be unresponsive or unavailable.

According to the FTC, only about half the users were able to reset their password within a week. And both MoviePass CEO Mitch Lowe and Chairman Ted Farnsworth knew all about it, per a jaw-dropping set of bullet points in the commission’s official complaint, which quotes from company communication:

a. When Lowe and Farnsworth presented the disruption program to other executives of Respondent MoviePass, one executive warned that the password disruption program “would be targeting all of our heavy users” and that “there is a high risk this would catch the FTC’s attention (and State AG’s attention) and could reinvigorate their questioning of MoviePass, this time from a Consumer Protection standpoint.” (Emphasis in original).

b. Another executive agreed, warning of “FTC Fears: All [the other MoviePass executive’s] notes about FTC and PR [public relations] fire are my main concerns as I think the PR backlash will flame the FTC stuff.” (Emphasis in original).

c. In response to these concerns, Lowe responded, “Ok I get it. So let[’]s try this with a small group. Let[’]s say 2% of our highest volume users.”

The second way MoviePass scammed customers in April 2018 was by requiring about 20 percent of its most active users — around 450,000 people — to upload photos of their ticket stubs for approval. (I had to do this at least once.) Those users were told they’d been “randomly selected” to submit to this tedious “verification,” but according to the FTC, Lowe personally determined how many people would be part of the initiative. “Lowe was aware that the ticket verification program was deceptive and understood its negative effect on consumers,” the complaint notes.

That’s because the trouble came when you actually tried to do what MoviePass asked. The process didn’t work on many smartphone operating systems, and the service’s own verification software often failed. Once again, MoviePass’s famously bad customer service was slow to reply to complaints, which meant customers weren’t able to use the service they were paying for and had to buy a ticket through some other means. Finally, if verification failed for some reason, the subscriber’s account would be canceled.

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The third shady strategy was deploying a “trip wire,” which restricted some users to seeing a certain number of movies per month and then cut off their service once they reached the maximum. This limit was not announced or advertised, and didn’t appear in the account terms of use. Subscribers would be grouped by how often they used MoviePass, and once they exceeded their secret allotment, they wouldn’t be able to use their subscription again until the following month, for reasons that were never made clear.

According to the FTC, the “trip wire” was usually activated for users who went to more than three movies a month, with Lowe setting the three-movie benchmark.

The FTC complaint also includes allegations that some subscribers’ credit card numbers were ultimately exposed in a data breach, which feels almost like a coda to the whole ridiculous saga. Still, for MoviePass users, the details in the complaint are unlikely to feel surprising. By the time the service finally shut down in September 2019, it had lost the confidence of most subscribers (many of whom had previously — and unsuccessfully — attempted to cancel their memberships) and become for many the symbol of a mishandled, Icarus-like business idea that flew way, way too close to the sun.

At the same time, the rise and fall of MoviePass paved the way for more measured and reasonable movie ticket subscription programs such as AMC Stubs, which — at least pre-Covid — seemed like they might bring some stability to the movie theater industry. (We’ll see what happens next as the pandemic wanes.) For now, though, the FTC’s complaints and MoviePass’s decision to settle, at minimum, helps validate the feelings of many of its most loyal customers: The deal was clearly too good to be true, but it was wonderful while it lasted.