Ousted MoviePass cofounder Stacy Spikes speaks out for the first time about the startup’s whirlwind rise and crash to financial reality

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In his first major interview since being fired by the company in 2018, MoviePass cofounder Stacy Spikes opened up to Business Insider about creating the startup and what led to his exit.
Spikes talked about the game-changing innovations that made MoviePass possible, including creating a geolocation mapping system from scratch in 90 days with a team of five.
He spoke about the heartbreak after AMC Theatres walked away from making MoviePass a partner after a successful trial run.
Spikes also explained his latest venture, PreShow, which has you watch branded content in order to go see movies for free.
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Though movie-ticket subscriptions have been popular in Europe for some time, the godfather of the model in the US is MoviePass cofounder Stacy Spikes.

Before MoviePass took its place in pop culture in the summer of 2017, when it dropped its monthly price to $10 a month and amassed millions of subscribers, Spikes was the trailblazer who got the scrappy startup from idea to reality.

MoviePass has sparked the creation of many movie subscription services since, but has struggled financially. It burned hundreds of millions of dollars as the stock of its parent company fell over 99.99%. It was kicked off the Nasdaq in February and is trading at less than half a cent per share. And Spikes has had to watch the fall as an outsider after being ousted from the company in January 2018.

Today, Spikes is at an office in a WeWork in Manhattan — with the first ever MoviePass card framed by his desk — and has taken the decade of experience making MoviePass and launched a new venture, PreShow.

Business Insider sat down with Spikes to conduct his first major interview since being let go by MoviePass.

He talked about the challenging path taken to get MoviePass off the ground, which included building a mapping system for the app from scratch in 90 days with a staff of five; the disappointing rejection by AMC Theatres following a successful trial run at the chain; and what led to his dismissal from MoviePass.

This interview has been edited for length and clarity.

Jason Guerrasio: How did the idea of movie-ticket subscription even come up in your mind?

Stacy Spikes: It goes back to Urbanworld Film Festival. I had been running the film festival for 8 to 10 years and in 2005, we were looking for a model to expand it to something year round.

I had a conversation with Travis Reid, who was then the CEO at Loews Cineplex, and he thought subscription for seeing movies was a great idea, but it should be done for the entire industry not just Urbanworld. And on the horizon you could see Netflix, Spotify, Pandora, Hulu, this whole subscription wave is coming. So Travis let me build the first prototype with Loews.

Guerrasio: You build out an SMS protocol. It works great. Why didn’t Loews just buy it right there?

Spikes: Travis thought it was great but then Loews and AMC merged. This is 2006 and I went to AMC, Regal, Cinemark, National Amusements, and they all had a different version of either IMAX or large format or 3D. They felt that’s the future. “What you’re talking about is not,” they said. “Why would anybody do that.” Five years I get "no’s."

I then have a conversation with Guy Primus, who at the time was at Will Smith’s company. And he said, "Do you know Hamet Watt?” I knew his name, we had been in the same circles, but we had never met. So Hamet and I got on a call and we were finishing each other’s sentences. And then he said, "I can help raise capital." So we cofounded MoviePass. I focused on getting the product built and he focused on the funding. We raised $1 million: $500,000 from AOL and $500,000 from True Ventures.

Guerrasio: Then the summer of 2011 is when you have your launch in San Francisco, and it doesn’t work out too well.

Spikes: 4th of July 2011 we do the San Francisco launch. We announce the company, it’s on the front page of Variety. 19,000 people tried to sign up on the first day. It was $50 a month to go to all the movies you wanted. And the servers crashed that day. We had built it into MovieTickets.com. We used their infrastructure. We gave them funds up front and we built it directly into their API. And we said, "Do we need to present this to your exhibitor partners?" They said, "No, that’s why you have us. We have all the rights and approval."

Then we get a call … it’s AMC saying: "Who gave you approval to launch this?" We told them it was through MovieTickets.com and they said they never gave them approval. We brush it off. The next morning we are all excited by the sign-ups, Hamet and I are on the cover of the San Francisco Chronicle business section. I’m flying back home and I’m floating above the clouds.

I land and my phone is full of voice messages. The first is, "Hey, we would love to interview you," then it changes to "Hey, what is your response to the statement that AMC released saying they are shutting you down?"

MovieTickets.com shrugged and said they didn’t know what happened but AMC is one of their shareholders so they can’t go forward. So we’re dead.

From there, we pivot to doing this thing using Hollywood Movie Money where you go online, log into an account, print a single use voucher, and you would come up to the ticket counter at the theaters with the voucher. From August through October, we’re crawling.

Business InsiderGuerrasio: But then the game-changer move happens. You line up with a credit card.

Spikes: Yeah, and the next thing that happened is MoviePass as we know it. We needed every single person to be able to do their credit card transaction dynamically in real time. It seems simple now, but back then it didn’t exist. We had to build real-time loading with geolocation capability. So we had to geolocate every theater in North America.

Guerrasio: How did you do it?

Spikes: We had a list of all the theaters in America and our team put in a zip code and address, the pin would show up, and they would have drag the pin to the front of the theater and take that longitude and latitude coordinate and plug them into our system. We built our own mapping system that provided the new coordinates for every theater.

Guerrasio: How long did that take?

Spikes: Everything I’m describing to you from new technology to mapping of the whole country to the credit card loading, we did it all in 90 days.

Guerrasio: How big was the team?

Spikes: Five. [Laughs.] We weren’t sleeping.

Guerrasio: How did you find more money?

Spikes: We were down to nothing when we had this built. I got on the plane to meet with Jon Callaghan from True Ventures. I met him in the rain at his office and I held up the first card. The first MoviePass card. I walked him through the technology and I checked into a theater down the street from his office. I said, "Jon, we’re going to have a patent for our technology, no one can stop us, the theaters can’t stop us, we’ll have access to all theaters and all movies." If John said "no" [to another funding round], we were done. He said he loved the pivot and couldn’t believe we pulled it off in 90 days.

Guerrasio: And at what price point are you at?

Spikes: We were testing: $19.99 was the lowest and we did up to $49.99. We tested regional pricing. Markets are very different. There’s an $8 market in Waco, Texas, and $17 market in Manhattan. And subscriptions are climbing. The plane worked, the engines are strong, now we have to climb up to 30,000 feet. It was 5,000 subscribers, 7,000, 10,000.

Guerrasio: But the credit card you were using at the time was Discover, and that came with challenges at the movie theater, right?

Spikes: The theaters thought this was a retail card, even though the Discover logo was in the back of the MoviePass card. But we were getting a lot of traction, so MasterCard came to us and liked what we were doing and they wanted to partner with us. We put the MasterCard logo on the front of the card and now everyone could recognize that this was a debit card.

Hollis Johnson/Business InsiderGuerrasio: Then in January 2015 you do a trial program with AMC.

Spikes: Yeah, I start stalking AMC CEO Gerry Lopez. Gerry would see me at a conference from across the room and he’d have this look like, "Oh, no, here he comes."

Guerrasio: But at this point you are doing all of this without the help of theater owners. Why suddenly are you chasing one of the biggest chains in the world?

Spikes: My mindset is the data shows we create 100% lift every month per person. IMAX never did that, 3D never did that, I’ve never seen anything in my 20-something years in the industry that ever did this.

So I went to Gerry with the proposal: "Gerry, if I can prove I can create 100% lift in a double-blind study, would you partner with me?" He said, “If you can create 100% lift month over month, sure." And we shook on it. So AMC loaded in their loyalty data, Stubs. We loaded in our MoviePass data and a study was done with neither of us able to see for the whole year what the numbers were. In Denver and Boston we did the trial. At the end of the year, data came back exactly as we said: 100% lift. With that report, we started to talk to some big investment players in the VC space.

Guerrasio: But AMC backed out, why?

Spikes: Gerry agreed to greenlight MoviePass on AMC across all markets, then he called me a week later and said, "I’m leaving." So Gerry tells me they are putting the program on hold and then Adam Aron comes in as CEO. I reach out to Adam, he says, "I love subscription, I come from the sporting world and subscribers are your core base, but I think I might want to build it myself." He saw the data and basically said, "I don’t know why I need you." That really slowed the engines down for us.

Guerrasio: So it’s 2016, how is the company doing financially?

Spikes: We have 15,000 to 20,000 subscribers. Our average life was two years. We had a 3% churn. Utilization was around 1.5 to 2. And the math was figuring we’ll get profitable a few months down the line because people would calm down in their behavior.

Guerrasio: But a major change happens at MoviePass.

Spikes: Me and the board decided we’d get one person to focus on getting capital, and since I built the product, [I’d] focus on operations. So Mitch Lowe came in, we put him as CEO, I was COO. We look and see that three theaters take up 50% of the business and the rest takes up the other 50%. Since AMC said "no," Regal and Cinemark aren’t going to say "yes," we decide to go from the bottom up.

Vivien Killilea/Getty Images for MoviePassWhile Mitch was out chasing capital, I spent the time setting up all these smaller theaters. Studio Movie Grill, signed on, they also invested. We also talked to Alamo Drafthouse, B&B, Landmark, Marcus. The conversations were going good, but it’s not a quick process.

Guerrasio: Then in the summer of 2017, Helios and Matheson Analytics comes in the picture. When’s the first time you heard of them?

Spikes: We went and had a couple of meetings in New York and we were introduced to them. Ultimately the proposal came in as $25 million for 51% of the company. And in the proposal it said they wanted us to temporarily drop the subscription price to $10 to help climb up to 100,000 subscriptions. Then eventually the company would go public. None of that was too painful. The $10 was thought of as a promotional thing, in a way celebrating HMNY buying us. But we hit 100,000 in 48 hours. [Laughs.] So I’m like, "Okay, turn it off. We reached our goal."

Where things started to divide is myself and a handful of others were methodical about testing price points. The lowest we ever got down to was $12.99 and as high as $75 where we added IMAX and 3D. We knew what was sustainable. But the overriding voice 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.

It’s now December and we were growing at a quarter of a million subscriptions a month and I definitely was not a happy camper and was making that known.

Guerrasio: In that month, the photo of Mitch and Helios and Matheson CEO Ted Farnsworth in front of the AMC in Times Square is released to celebrate the company hitting 1 million subscribers. What did you think of that?

Spikes: It’s more, what was the industry’s reaction? I think the industry’s reaction was a sense of disappointment. It’s a small neighborhood, exhibition. These are handshake deals, some families have owned these companies for generations. That photo changed the relationship in the marketplace. The tone turned it more adversarial. Up to that point, MoviePass had been the underdog champion for going to the movies.

MoviePass/Reuters I wasn’t part of that decision. Then on January 9, I get an email that said, “Thank you, but your services are no longer needed.” And my feeling is we just disagreed on the approach. After that, I’ve never spoken to Mitch or Ted. And I’ve been watching it all unfold like everyone else.

Guerrasio: What is it like being on the outside now and seeing what has unfolded?

Spikes: People were becoming upset with the company, and we had built brand loyalty for years. The fact that was evaporating so quickly was concerning. The good side was cinema had not been taken seriously since Netflix really got its footing. So what I liked about that was this had risen to the zeitgeist of conversation. 75% of our 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.

Look, the back of the envelope idea was this: For the cost of one major motion picture, you could set up a subscription that could create a 10% lift for the whole industry. Well, at the 2018 box office it got to half that. The price point was set too low, but the output was close. It was a 6% lift and I think 5% of that was MoviePass. If you doubled that for the next year, you would have gotten a 10% lift. The other thing that our data showed back then was 50% of that lift was Monday through Thursday. We have learned to live without that money as an industry and now people are going mid-week.

Guerrasio: But this was your baby, people laughed in your face when you presented the idea of MoviePass in board rooms, you weren’t hurt personally by some of the stuff you read about the company you founded after you left?

Spikes: Listen, you go through a whole string of emotions like any kind of breakup — "Great, I’m glad to be out of there" to "I wish I was still there to help from the inside" — but there’s a saying investors always like to ask entrepreneurs, "Would you rather be rich or would you rather be the king?” What they are trying to get out is are you more important or is the mission more important? My mission in my heart and soul is I love moviegoing. From working in a video store in high school all the way through my career I’ve had one job: help people see movies.

Guerrasio: That brings us to your latest innovation, PreShow. Explain how you got this idea.

Spikes: What we are saying with PreShow is that money the brand is spending stays within the movie. If Audi has a product placement deal with the new "Avengers" movie, Audi wants YouTube to run its ad whenever the "Avengers" trailer is played. We are saying the same thing but the payout is in the form of a free ticket to the movie. So the product placement and the movie is kept in the ecosystem. That’s the premise. We guarantee that you saw the ad. The phone creates a cone that is simply motion detection. It doesn’t record you, it just knows that you’re watching the screen and if you look away it pauses the ad. It lets a brand know the person is really watching.

PreShow/KickstarterGuerrasio: You hit your Kickstarter goal very quickly, what do theater owners think of this idea?

Spikes: I’ve sent emails to all the exhibitors and I sent emails to all the studios telling them what we’re doing. I want to keep them in the loop. I want to reduce the friction of being able to go to the movies.

Guerrasio: Looking back, did MoviePass have to basically go to an insane price point and have this crazy roller coaster ride for the last few years to prove that movie-ticket subscription can work in this country?

Spikes: This is going to sound weird: I trust the universe. There’s no such thing as a mistake. There’s just learning what to do and what not to do. They both make you better. I remember at MoviePass packing up my box and getting home and I took about a week off, then I got an office and was like, "If I could redo MoviePass today, what would I do?"

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Source: Business Insider – jguerrasio@businessinsider.com (Jason Guerrasio)