The Securities and Exchange Commission has filed a lawsuit against former MoviePass executives Mitch Lowe and Ted Farnsworth, alleging the two made “false and misleading statements” about the shuttered movie ticket service’s profitability. The suit also names former MoviePass VP Khalid Itum for submitting false invoices.
Lowe, a former Netflix executive and president of Redbox, and Farnsworth, operating under MoviePass’ publicly traded parent Helios and Matheson Analytics, helped re-launch and market MoviePass, which at its peak had more than 3 million subscribers paying $9.99 monthly for unlimited access to a select number theatrical releases every 30 days. The populous concept quickly became financially unsustainable as MoviePass had to pay theatrical operators the face value for each ticket subscribers used.
Helios and Matheson Analytics filed for Chapter 7 bankruptcy protection on Jan. 28, 2020, but not before generating hundreds of millions of dollars in losses.
“Faced with debilitating negative cash flows — rather than tell the public the truth — Farnsworth and Lowe devised fraudulent tactics to prevent MoviePass’s heavy users from using the service, and falsely and misleadingly informed the public that usage had declined naturally or due to measures the company had employed to combat subscribers’ purported violations of MoviePass’s terms and conditions of service,” read the complaint.
Lowe’s lawyer, William McGovern, with the firm Kobre & Kim, disagreed with the suit’s wording and negative tone.
“We disagree with the SEC’s characterization of Mitch’s conduct, including allegations about statements made about the progress in building MoviePass,” McGovern wrote in a statement.
“Bringing new commercial concepts to the market can be disruptive and uneven. Mitch remains proud of what was accomplished at MoviePass and intends to work within the legal process to resolve these allegations.”
A spokesperson for Farnsworth said the complaint concerns issues publicly disclosed almost three years ago.
“Mr. Farnsworth continues to maintain that he has always acted in good faith in the best interests of his companies and shareholders,” spokesperson Chris Bond wrote in an email.
Adam Fee, a partner with the law firm Milbank, which is representing Itum, said the former VP has been unfairly targeted by the government in the complaint.
“Khalid is proud of the character and integrity he displayed throughout his time at MoviePass, and we look forward to challenging the SEC’s meritless allegations against him in court,” Fee wrote in an email.
Meanwhile, Farnsworth and Lowe reportedly settled a separate litigation complaint with the Federal Trade Commission and paid another $400,000 settlement with four California District Attorneys offices.
Mitch Lowe is a veteran business and entertainment executive whose impressive track record includes stints as a video rental store owner, president of Redbox and founding executive of both Netflix and MoviePass. Today, Lowe gives inspirational speeches around the world to corporations, conferences and students, sharing stories of innovation, disruption and facing the challenges of building new products and services.
Lowe has just written a book, Watch and Learn: How I Turned Hollywood Upside Down With Netflix, Redbox, and MoviePass — Lessons in Disruption, which is being published this month by Hachette Go, an imprint of New York book publisher Hachette Books.
Lowe was one of the early pioneers in the movie rental industry, opening video rental stores in the early 1980s and building a chain of stores in Northern California called Video Droid. He was active in the trade association representing that nascent industry and served on its national board and as president. In the early 1980s, Lowe tried to launch VHS video rental kiosks as well as a subscription-based website provider. In the late 1990s Lowe joined Marc Randolph and Reed Hastings at Netflix as the video industry expert. As VP of business development and strategic alliances for Netflix’s first five years, and as a member of its core executive team, Lowe led many of the partnerships that drove new subscribers to join Netflix, such as its partnership with Best Buy and DVD manufacturers.
Lowe left Netflix in 2003 after a successful IPO and joined the business development team at McDonald’s Ventures to build a DVD vending machine business called Redbox. He served as its COO and president for eight years, growing the company from $36,000 in first-year revenue to more than $1.5 billion in revenue. He left in late 2011 and began investing in startups in various spaces, eventually joining MoviePass as its president in 2016. Most recently, Lowe received the “Distinguished Mentor Award 2021” from The Abrahamic Business Circle.
Over the past few years, Lowe has also produced several movies, including Gotti, American Traitor: The Trial of Axis Sally and 10 Minutes Gone, and the documentary Shirin Ebadi Until We Are Free (which premiered at the Venice Film Festival Sept 5.)
Media Play News recently spoke with Lowe about his new book.
MPN: Mitch, over the last 30-some years you’ve touched down in virtually every aspect of the home entertainment business. Now you’ve added “author” to your credits. What prompted you to write a book?
Lowe: For the last six years, I have traveled all over the world giving speeches at company meetings, conferences and universities. At every event I am asked a series of questions, such as “How did Netflix change the way we enjoy entertainment?”; “Why did Netflix succeed and not Blockbuster?”; “What is it I need to learn to start my own company that can be successful?”; and more. I have learned that there is no such thing as “always true” answers to these questions. I believe the best way is to answer them yourselves — and hearing the stories behind how I and the amazing people I had the opportunity to work with solved these challenges is a great way to figure it out on your own. So I decided to use the time in the pandemic to share some of these stories in a book.
MPN: How did you go about securing the book contract?
Lowe: I asked friends I knew who had written books for their advice and they introduced me to advisors who help first-time authors navigate the world of publishing. After several interviews I contracted with a former editor at the Harvard Business Review to teach me how to find an agent and then a publisher. She brought in another advisor, who taught me how to write, and after putting together a book proposal which included a draft chapter, story outline and a competitive book description, I found an agent. The agent shopped my book to a half dozen publishers. Several were interested and we settled on the one that agreed to make the most effort in promoting the release.
MPN: How is distribution being handled, and what kind of promotional activities are you doing?
Lowe: Hachette has been promoting the book to retail for some months now and their fantastic PR team has had me do a dozen or more podcasts that have relevant listeners and well-known podcasters along with many interviews in both the business and entertainment fields. Lastly, I am doing book signings and bringing books to sign at the speeches I give.
MPN: Give us the three most important takeaways from the book.
Lowe: Don’t take too long to decide what you are going to do. Become an expert in your field. Remember that nothing stays the same and success is fleeting.
MPN: From video retailer to Netflix, Redbox and MoviePass pioneer, if you could go back in time, is there anything you would’ve done differently?
Lowe: I would have paid more attention to building allies.
MPN: What is the best piece of advice you ever received?
Lowe: Slow down and focus on one thing. (I did not follow that advice.)
A new book by industry veteran Mitch Lowe, Watch and Learn: How I Turned Hollywood Upside Down with Netflix, Redbox, and MoviePass — Lessons in Disruption will be published Sept. 6 by Hachette Go, part of France’s Hachette Livre, the third-largest trade and educational publisher in the world.
“This is the inside story of how I and other entertainment industry disruptors shaped a world where you can watch whatever series or movie, wherever and whenever, you want,” Lowe said in an email to Media Play News.
The book features a forward by Marc Randolph, a co-founder of Netflix.
Lowe was a founding executive at Netflix, where he served as VP of business development and strategic alliances from 1998 to 2003. In 2003 he joined the investment group at McDonald’s to co-lead, first as COO and then as president, the management team at Redbox, the DVD vending machine rental service that under his leadership grew to 35,000 kiosks across the U.S.
In 2016, Lowe became CEO of MoviePass, a movie theater subscription service that acquired 3 million subscribers in eight months.
Lowe has since been on the speaker circuit, and has presented to audiences as large as 7,000 around the world. In 2019 he made BigSpeak’s list of the top five most-booked speakers.
Prior to Netflix, Lowe ran the Video Droid video rental store in California’s Bay Area and was the elected head of the Video Software Dealers Association (VSDA), the video retail trade group that has since morphed into OTT.X, the streaming trade association.
Editor’s note: This is the first in an occasional series of personal stories by executives in home entertainment, detailing how they got into the business and comparing what they’re doing now to what they did back then. For submissions, please contact Thomas K. Arnold at tkarnold@mediaplaynews.com.
Mark Fisher
Facebook memories occasionally stimulate reminiscing about days gone by.
The other week, an old post and picture popped up on Facebook that reminded me that my first contribution to the home entertainment industry was opening my first video rental store — the first store-within-a-grocery store — 36 years ago. That triggered a rush of memories of those earlier years, and the travels to get to where I am today: still in home entertainment, focused on streaming, now the industry’s dominant incarnation.
But let’s step back. In 1985, I was just starting my career. I had a job at Stop & Shop Supermarkets, the largest grocery chain in New England, managing the non-foods departments in the company’s Connecticut stores — a great gig to have in my 20s. The company was, compared to other grocers in the 1980s, very professional and progressive, and had lots of really good people in its management ranks. When independent video rental stores were popping up around New England, the company thought, what better place for a rental store than in the neighborhood grocery store. It is, by nature, a convenient location, and customers visit on average of two and one-half times each week.
Personally, I was a movie lover and a video enthusiast. I had a front-projection TV, a piano key VCR (like the one you see at the start of each episode of ABC’s “The Goldbergs”), and I was a regular renter of VHS tapes at the Fotomat drive-through, where you could find all the latest releases.
I was recruited to move up to corporate headquarters in Boston and lead a team to develop our own chain of rental stores to operate within our grocery stores. Like every other video rental store, we charged a membership fee and rented movies by the night. Unlike the others, partly because we didn’t have a lot of space, we didn’t put empty boxes out on the shelves — we put the actual tapes out for the customer to bring up to the counter to rent. (That way there was no chance they’d be disappointed if it was out of stock.) We were a well-funded company, and we had an aggressive rollout plan — so, also unlike so many of our competitors, we brought in lots of copies of new releases (think 75 copies of Jurassic Park). Our customers were more likely to go home with the movie they came in for, and hopefully one or two more.
We located the Stop & Shop Video Centers up in the very front of the store layout, so the customer could get in and out easily. Executive management took this new venture seriously. We were formed as a separate division of the company — I reported to the SVP of operations, and my direct reports were the buying team and district managers, while the store teams reported directly to my DMs (unlike everybody else in the store, who reported to the grocery store manager). We were truly a novel “store-within-a-store” concept.
We built our chain up to 63 stores within our grocery stores, and five freestanding 6,000-square-foot video rental stores positioned adjacent to our grocery stores. We had endcaps with video rentals that were serviced out of the courtesy desks in our smaller grocery stores, and a team of merchandisers who revamped the product mix in each weekly.
The most enjoyable part of my job was the promotions that we ran, with the support of our studio partners. We had a tie-in promotion with the actual Mystic Pizza in Connecticut when that Julie Roberts movie released; another with the submarine base in Groton, Conn., when The Hunt for Red October was released. We worked with a local radio station and hosted a day at the Rhode Island Zoo when Disney released Jungle Book. And we raised a lot of contributions and spent Thanksgiving Day helping out at a homeless shelter in Springfield, Mass., to promote Robin Hood: Prince of Thieves. There were countless others — pretty much a new promotion somewhere within our chain every month.
A Mickey Mantle in-store appearance at a Stop & Shop Video Center.
We also had lots of in-store appearances. Customers lined up to meet Mickey Mantle, Phil Rizutto, Gordie Howe and plenty of others over the years.
Our biggest events were our annual Oscar parties. We invited our best customers from each store to join our store managers and management team each year to watch the Oscars on big screens with music, food and drinks. We always had special guests and local entertainment. We really scored the year that David Letterman hosted the Oscars and we had secured Larry “Bud” Melman, Letterman’s “man on the street,” to participate in our party.
How did I learn the business? Here’s where everything comes full circle. Before we opened our first store, I started going to meetings of the local chapter of the Video Software Dealers Association (VSDA — which eventually became EMA and now OTT.X). The VSDA in those days was primarily an organization of small independent video rental stores around the country. I learned from other retailers and from local distributor reps and studio reps. Stop & Shop joined the VSDA. I attended local meetings, and went to my first national convention in 1986. I eventually joined the board of directors for the local VSDA chapter, and helped out creating educational events for video rental store employees in New England. I served as treasurer for a few years, and during that time I was appointed to the VSDA’s national board of directors, where I served with industry superstars such as Mitch Lowe (later the co-founder of Netflix and Redbox), David Ingram (president of Ingram Entertainment), Ron Berger (founder of Rentrak) and others. Before I left that board, I had moved up to treasurer, while still treasurer of the local board.
All of my team at Stop & Shop was involved in the VSDA — my buyers, my DMs and my store managers. They attended meetings and events and got involved in producing local VSDA events. These sessions supplemented the industry knowledge that we could share with them, and inviting them to local movie openings and VSDA parties served as a reward, too. My team worked really hard — but I always liked to give them the opportunity to play hard, too.
In 1997, I was recruited to head up corporate store operations for West Coast Entertainment — a chain of 450 rental stores plus even more franchisees on the East Coast. Not able to grow our Stop & Shop video store footprint any larger, I left and moved to Philadelphia for my new position with West Coast. It was challenging, managing a chain that had a dozen different retail store brands and nearly two dozen different POS systems, but it was also an opportunity to grow a new team and meet a lot of new friends — many of whom I’m still close with and work with today, including Mike Haney at Allied Vaughn and Steve Apple on our OTT.X team.
Just a few years later, I joined the staff of the VSDA, then headed by Bo Andersen, to manage membership and sales. Twenty-two years later, I’m still here, now in the president/CEO role, and I’ve been at the helm from our transition from physical discs to digital and from EMA to OTT.X.
The old saying, “everything old is new again,” certainly has rung true for me. The big sellthrough retailers such as Best Buy, Walmart and Target, as well as many of the big studios, haven’t been the most entrepreneurial and have been less in need of what we do as a trade association. Today we are back to an organization of mostly indie or entrepreneurial companies — along with many established companies. We’re back to having lots of engagement and a strong vibrant community.
Looking back, it’s been lots of fun, and most of all, I’ve made lots of friends — and if I didn’t move out to Los Angeles for this gig at what was then the VSDA, I’d never have met my wife. Julie. And, I think I’ve made an impact on the industry that I love over the years. (Actually, Redbox co-founder Mitch Lowe wrote that my original Stop & Shop store-in-a-store concept was the inspiration for Redbox.)
The best thing about all of this is that it isn’t over. Today’s industry isn’t what we knew as “home entertainment” — it’s blended with the extension of the broadband and cable industries and linear programming into OTT, and it is still in its formative stage with a hunger for education, collaboration and networking. And as long as I’m still challenged and having fun, I’ll be in it — transitioning and pivoting, just as I’ve always done.
Discovery is the biggest challenge facing the new entertainment landscape of endless choice, said Netflix co-founding executive and former Redbox president Mitch Lowe.
“I think if anybody can figure out how to solve this problem for big segments of the population, it’s a real big opportunity in the business, and no one’s doing it,” he said during a keynote presentation for the OTT.X@Pipeline 2020 online conference Dec. 9.
“On one side, people say they want all the choices in the world, but on the other they go, ‘But I don’t want to spend time wading through them,’” he noted. “[At kiosk rental company Redbox] we found that when we created that light box, that has I think 66 box arts on it, that was the maximum people could go through. Anything more and anything less was counterproductive and in fact constrained consumption.”
He also pointed out limitations of computer algorithms in helping consumers find what they want to watch, noting one algorithm he remembered that recommended that folks who watched Willy Wonka would like to watch The Shining.
Discovery is key because “people don’t want to work hard to find something good, but they also don’t want to spend their time watching something that they end up turning off,” he said.
Recalling his early days as a video store chain owner and president of OTT.X’s predecessor the Video Software Dealers Association, Lowe said his experience talking with customers informed his later, groundbreaking career path.
“What I learned one on one with customers was how they think about entertainment,” he said.
In fact, he noted, he met Netflix founder Marc Randolph at a video convention.
“If you look at my career at Netflix, I was really the video guy,” he said. “I was the guy who knew the entertainment industry.”
In a callout to the video store industry veterans at the online conference, he said, “It’s really wonderful to be back with so many familiar people. I think this is kind of a little bit of a homecoming.”
Asked about Warner’s recent decision to send new releases to its streaming service HBO Max concurrent with theatrical release, Lowe bemoaned the potential damage to the theater business.
“I absolutely love the experience in movie theaters,” said Lowe, who was also at one time CEO of MoviePass, a now-defunct theater ticket subscription service.
He noted the importance of a shared experience in theaters, where the audience can jump in tandem at a horror film or laugh together at a comedy.
He touted the subscription model for theaters, which some chains such as AMC have instituted.
“In the end, the entity or the business that has that one to one relationship with the consumer is the real winner,” he said, and that’s “why companies like AMC did not like companies like MoviePass getting between them and their customer.”
Former Helios and Matheson Analytics CEO Ted Farnsworth just doesn’t know when to quit.
A day after stepping down as CEO of the parent to shuttered MoviePass ticket subscription service and related businesses (MoviePass Films, Moviefone), Farnsworth reportedly is cobbling together a group of investors to buy select MoviePass assets.
According to The Wall Street Journal, which cited HMNY internal documents, including Farnsworth’s resignation letter, the executive eyes continuing MoviePass Films, which generated several original releases starring Bruce Willis.
Whether Farnsworth — a longtime MoviePass cheerleader along with the service’s CEO Mitch Lowe — would bring back MoviePass is unclear.
Launched in 2017, the $9.95 monthly ticket service offered subscribers daily access to a non-3D theatrical screening. At its peak, MoviePass had more than 3 million subscribers eager to take advantage of a business model that hemorrhaged money.
The service sought to make deals with exhibitors who were paid face value by MoviePass for every ticket used by subscribers in exchange for user data.
Chains such as AMC Theatres, Regal Cinemas and others wouldn’t bite, opting instead to launch competing ticket services.
Despite several attempts to re-invent the MoviePass business model, investors pulled the plug on HMNY shares — especially after two reverse-stock option split attempts.
Whether investors would line up behind Farnsworth for another edition of MoviePass remains to be seen. HMNY could also sell the assets to a third party.
Subscription theatrical movie service MoviePass will shut down Sept. 14 at 8 a.m. (EST), according to a letter from CEO Mitch Lowe on the site.
“Over the past several months, MoviePass worked hard to relaunch its groundbreaking subscription service and recapitalize the company,” he wrote. “While we were able to relaunch the service for some of our subscribers with an improved technology platform, our efforts to recapitalize the company have not been successful to date.”
He wrote that subscriptions will be refunded.
“MoviePass will be providing subscribers with appropriate refunds for their period of service already paid for,” he wrote. “Subscribers will not need to request a refund or contact MoviePass customer service to receive a refund. Subscribers will not be charged during the service interruption.”
The future of the service remains uncertain, according to the letter.
“At this point, we are unable to predict if or when the MoviePass service will continue,” Lowe wrote.
Owned and operated by Helios Matheson Analytics, the service at its peak generated more than 3 million subscribers paying $9.95 for daily access to theatrical releases.
Fiscally challenged MoviePass suspended service midday July 4 for an indefinite period of time to revamp its app.
The eight-year-old movie ticket subscription pioneer, in an email to subscribers, said the stoppage was in order to “provide the level of service you deserve.”
“We have listened and we understand the frustrations of our subscribers,” Mitch Lowe, CEO of MoviePass, said in the July 3 email. “We plan to make this improvement by utilizing an enhanced technology platform, which is in the final stages of completion.”
During the shutdown, MoviePass will not take on new subscribers. Existing subs will be credited for the number of affected days once the service continues.
Owned and operated by Helios Matheson Analytics, the service at its peak generated more than 3 million subscribers paying $9.95 for daily access to theatrical releases.
The business model quickly proved unsustainable as MoviePass paid exhibitors face value for each ticket consumed by subscribers. Unable to reduce ticket fees and market subscriber data to exhibitors, the service hemorrhaged money — losing $329.3 million, on revenue of $232.3 million in 2018.
In March Helios said it received nearly $6 million in funding from an unidentified investor.
“There’s never a good time to have to do this,” Lowe said. “But to complete the improved version of our app, one that we believe will provide a much better experience for our subscribers, it has to be done.”
Regardless, movie subscription service appears here to stay as exhibitors grapple with burgeoning over-the-top video competitors.
AMC Stubs A-List service has more than 800,000 subs, while rival Regal Cinemas is working on its own branded service. Atom Tickets and Cinemark have separate subscription plans in place.
MoviePass, the fiscally-challenged theatrical ticket subscription service, has reportedly shed about 90% of its peak of more than 3 million subscribers from June 2018.
According to BusinessInsider, which cited internal data obtained from the former high-profile service, MoviePass has generated just 13,000 new subs since launching an “uncapped” plan in February affording subs daily access to a theatrical screening for $9.95 monthly fee.
The new plan, which was a reboot of a previous price point that attracted 100,000 subs in 48 hours after launching in 2017, also enables MoviePass to throttle frequent users.
MoviePass owner Helios and Matheson Analytics disputes the subscriber tally, calling the data “incorrect” without elaboration.
Regardless, the MoviePass business model paying exhibitors face value for every movie ticket consumed by subscribers remains financially unsustainable.
The service hemorrhaged hundreds of millions of dollars, sending HMNY stock into a nosedive. Company shares were delisted from Nasdaq earlier this year.
Stacy Spikes, who co-founded MoviePass in 2011, sold it to HMNY in 2017 and was fired from the company in 2018, told BusinessInsider the $9.95 price point was never intended to be permanent.
“[It was] thought of as a promotional thing, in a way celebrating HMNY buying us. But we hit 100,000 [subs] in 48 hours. So I’m like, ‘OK, turn it off. We reached our goal,’” Spikes said.
The executive concluded that $12.99 was the least MoviePass could charge, while a $75 option including Imax and 3D screenings was considered as well.
“But the overriding voice [at HMNY] was, ‘No, this is awesome, look how fast we’re growing.’ And it was this moment of ‘but $10.’ It doesn’t fly. Now the plane is falling,” Spikes said.
In fact, when HMNY CEO Ted Farnsworth and MoviePass CEO Mitch Lowe were photographed joyfully in front of an AMC Theatre on Times Square after surpassing 1 million subs, Spikes had a different reaction.
“That photo changed [MoviePass’] relationship in the marketplace,” he said. “The tone turned it more adversarial [with exhibitors]. Up to that point, MoviePass had been the underdog champion for going to the movies.”
Indeed, AMC Theatres, which had initially been supportive of MoviePass under CEO Gerry Lopez, became increasingly less so under new CEO Adam Aron.
Aron made it a point to repeatedly question the MoviePass business model on fiscal calls and in press releases – despite generating millions in revenue from MoviePass subs.
Last year AMC launched the AMC Stubs A-List subscription service, which has generated about 700,000 subscribers paying $19.95 monthly for access to three screenings weekly in any format.
AMC recently raised prices to $21.95 or $23.95 depending on the market subscribers live in.
Spikes says the initial success of MoviePass, AMC Stubs A-List and Cinemark’s service underscores market demand for a subscription business model.
“The good side was cinema had not been taken seriously since Netflix really got its footing,” he said. “So what I liked about that was this had risen to the zeitgeist of conversation. Seventy-five percent of [MoviePass] members were under the age of 26. Cinema was an event people cared about again. So while there is a sadness around the brand, I was happy to see that this is front and center.”
Helios and Matheson Analytics March 22 announced the appointment of Robert Damon as CFO, replacing Stuart Benson, who resigned from the parent of the MoviePass theatrical ticket subscription service March 15 to take another job.
Benson’s departure followed the disclosure HMNY had incorrectly recognized about $5.9 million in revenue from MoviePass subscriptions that had been suspended.
Damon, who has worked as a consultant to HMNY for a year, was chief accounting officer for SFX Entertainment for three years through 2016. Previously, he was Katz Media Group CFO for 17 years.
HMNY earlier this month revised its third-quarter net loss to $146.6 million — nearly 7% more than a loss of $137 million originally reported. For nine months of the fiscal year, HMNY lost $256.3 million, 3.8% more than a loss of $246.7 million.
CEO Ted Farnsworth and Benson said measures have been taken to avoid future accounting issues, including implementation of software upgrades to provide “real-time” information for managing and accounting for subscriptions, including subscriptions that are terminated or suspended.
“Members of the company’s management have discussed the matters with Rosenberg Rich Baker Berman, P.A., [HMNY’s] accounting firm,” Benson wrote in the filing.
“This is the inside story of how I and other entertainment industry disruptors shaped a world where you can watch whatever series or movie, wherever and whenever, you want,” Lowe said in an email to Media Play News.
