What MoviePass Can Teach Us About the Future of Subscription Businesses

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Robert Woloschanowski/EyeEm/Getty Images

It has been a very rough few months for MoviePass. Since I last wrote about the company, theater operator AMC entered the subscription market, to early success, and MoviePass took out and paid back a $6 million emergency loan and flip-flopped both its pricing and its product. Lately the company has resembled a fish out of water, gasping for breath.

Will MoviePass survive? The broad answer is yes; the specific answer is more complicated. It could still manage to remain as a stand-alone business (though it’s unlikely); it might survive as part of another business (through an acquisition); it’s already surviving, in a sense, by having its basic model adopted by companies like AMC. And whether it survives as a corporate entity or not, it will surely be remembered in business lore as a case study or cautionary tale.

I’ve watched a lot of movies

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How to Fix MoviePass

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MoviePass, an upstart movie theater subscription service, has been a controversial topic lately. One Wall Street analyst called MoviePass a joke that would be out of business in 18 months. It lost nearly $100 million in its most recent quarter, its parent company’s stock has plummeted, and its auditor recently voiced skepticism over its ability to stay in business.

The company suffers from three fundamental problems. The first is a flawed business model. Its average subscriber sees three movies a month; for every ticket a subscriber uses, MoviePass pays the full retail price to the theater. The problem is that MoviePass collects only $9.95 per month per subscriber, and three movie tickets costs nearly $30, on average, meaning it’s losing nearly $20 per month per subscriber on a variable cost basis. This is a problem that scale (meaning more subscribers) cannot solve.

The second problem: Movie theater operators don’t

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Why Dominating Your Category Can Be a Flawed Strategy

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steven moore for hbr

Of the many contributions Jack Welch has made to business wisdom, one of his most famous was “Be #1 or #2 in every market.” That advice served GE well in shaping its portfolio of businesses and its strategy for many years, but it’s not clear to us that it is as relevant any more. It may, in fact, be a dangerous strategy in today’s business environment.

Take the cereal business, for example. General Mills actually grew from #2 to #1 in market share the last few years. But the cereal category declined $4 billion dollars from 2000 to 2015, so it didn’t matter. In fact, total sales at General Mills has declined for 15 of the last 16 quarters.

General Mills highlights three things that are the root of the problem of the axiom “Be #1 or #2 in your category.”

The first problem

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What Should an Apple Car Be?

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Tim Cook recently confirmed that Apple is working on ‘autonomous systems.’ As usual with Apple, details are sparse, but it’s likely that autonomous cars are part of this. Apple is so great at connectivity, aesthetics, and entertainment that any vehicle they develop will incorporate these as table stakes. With that in mind, I can see three potential scenarios for how Apple might play in the autonomous car market. The first scenario is to enter cars as a Trojan horse to sell more iPhones. It’s the most conservative play–and a nod to the fact that Apple’s revenues are 60% driven by iPhones. Elon Musk has already said he thinks of Tesla as a ‘sophisticated computer on wheels.’ One could imagine an Apple car that is a Tesla-like product—one with comparable speed, self-driving technology, aesthetics, and features–but is so seamlessly integrated with the Apple ecosystem and requires a new
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Why Companies Should Measure “Share of Growth,” Not Just Market Share

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Accelerating growth is on every CEO’s agenda. Each year business leaders commit to an overall revenue growth target, but the reality is that growth within a business is often very uneven. Some parts grow faster, and one hopes that they offset the other parts that may be declining. Dave Calhoun, former vice chair at General Electric and now senior managing director at Blackstone, says that it’s better to double down on your winners than to invest in fixing the losers. But many companies have a one-size-fits-all mindset toward metrics, which makes it hard to use that judgment when allocating resources from the top. Similarly, there tends to be very little incentive for leaders below the C-suite to double down, even when they see a great opportunity. We personally know of three executives who were pivotal in launching $100 million-plus innovations. Despite the huge incremental value all three created for their
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The Benefits of Hiring Your Best Customers

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I am a big proponent of superconsumer strategy: find, listen to, and engage with your most passionate customers; understand their tastes, emotions, and behaviors; lean into the aspects that also resonate with a much larger group of potential superconsumers; and then tailor your decision making, coordinate, and concentrate your cross-functional investments, and innovate—both your product and your business model—to give these consumers what they want and need. I’ve found that managers who fully embrace a superconsumer strategy learn more from their consumers through increased empathy. These managers are more persuasive at getting buy-in from the leaders in their organization, make better strategic decisions, and achieve more stable, more predictable, and longer-term growth. I also know all too well that, like all strategies, superconsumer strategies can be hard to implement, because of internal processes, misaligned incentives, and organizational structures that are difficult to navigate. And even if you’re successful at
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The Forecasting Sweet Spot Between Micro and Macro

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Forecasting is the third rail of business. Few companies are really good at it, and there can be big penalties for being wrong. In fact, a survey of more than 500 senior executives showed that only 1% of companies hit their financial forecast over three years, and only one out of five are within 5%. Overall, companies were off by 13%, which impacted shareholder value by 6%. Forecasting, as analytically challenging as it is, is a lot like politics, in that there are multiple agendas. Those responsible for delivering a revenue forecast typically want to lower it. Those seeking more resources want to increase it. This manipulation makes sense: If a forecast is unlikely to be accurate, then you may as well align it with your agenda. The clear solution is to improve the quality of forecasts, especially in further-out years. With the growth of big data, it is tempting to hope
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Why New Consumer Brands Must Scale Faster

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The cycle time from the small seed of an idea to successful scale has shortened dramatically. Barriers to entry have never been lower. Capital is plentiful. This may sound like the start to another technology startup story, but actually we are talking about startups in consumer packaged goods. Steve Demos, the founder of Silk Soymilk, used to joke that Silk is a 25-year overnight success. Today, scaling a company like Silk can take only one-fifth of that time. Consider Koel Thomae, who ran purchasing for Izze, the widely successful natural soft drink that was sold to Pepsi. After the sale, Thomae was on vacation in her native Australia, where she tried a yogurt unlike anything she had ever tasted. She and some partners self-funded to scale Noosa Yoghurt to over $50 million in revenue in less than five years before selling it to Advent, a private equity firm. That example illustrates how
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Big Companies Should Collaborate with Startups

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Campbell, the food company best known for its soups, is investing $125 million in a venture fund to help finance food startups, according to the Wall Street Journal. Other large consumer companies are doing the same. They share a motive: Growth is increasingly hard to come by, so large companies are increasingly looking to entrepreneurs to help them find it. Consider the numbers. Over the last four years, the entire U.S. grocery store’s entire food and beverage category grew just 2.3% a year. The largest 25 food and beverage companies contributed only 0.1% of that annual growth rate. Who drove the growth? It came from 20,000 small companies outside of the top 100, which together saw revenue grow by $17 billion dollars. Despite that aggregate revenue growth, not every startup is successful — in fact, the vast majority will fail. Ironically, startups and established companies would both
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The Billion-Dollar Opportunity in Single-Serve Food

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Imagine being able to buy one medallion of Kobe steak. Or perhaps two single servings of pasta, because you like angel hair and your significant other likes rigatoni? As consumers, we want what we want, when we want it and how we want it — fueling the demand for personalization and customization. To our credit, we’re willing to pay a premium for it. This is no different than ordering one slice of pizza instead of an entire pie. Or buying a single song, instead of an entire record album. Or making a single cup of coffee–with the exact brand, roast, and flavoring you desire—instead of making an entire pot. That last example is extremely relevant to one of us (Michelle), since as president of Keurig from 2008 to 2014, she helped drive that concept to a $5 billion category. The single-serve experience is a powerful intersection of great business (higher margins, incremental
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Store Brands Aren’t Just about Price

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More and more, I hear different twists of the same question from clients: Can emotion still influence buying behavior in world where the mobile internet, with real-time access to product reviews and price comparisons, is training consumers to shop purely on rational facts?

On the surface, it looks like rational benefits are winning. According to Nielsen, in the last three years leading national brands in grocery stores, which probably command the lion’s share of traditional “emotive” advertising dollars, grew sales 0.7%. Meanwhile, private label, or store brands, grew 8.8%. That’s scary data, if you are one of the big brands who rely on emotion to drive the business

The core assumption here is that private label sales are only about price. To test this, we decided to take a look to see if private label superconsumers — consumers who buy a lot of private label and have strong

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