MoviePass Experiences Outage Because the Company Ran Out of Money

MoviePass’s long-rumored cash-flow problems reared their head earlier today, leading to a temporary suspension of the service.

According to CNN Money, MoviePass had to borrow $5 million to cover the cost of movie tickets and get its payment processing services back online after an outage, feeding into a general sense that the service’s business model is unsustainable.

The cash loan used to bring the service back online was acknowledged in a regulatory filing and so is being widely reported and analyzed.

MoviePass’s parent company, Helios and Matheson Analytics Inc., is taking such a hit on the heels of the news that NASDAQ has temporarily suspended trading on the company’s stocks until things start to stabilize. The company approved a reverse stock split earlier this week to boost the price from 8 cents to $21, in order to remain on the NASDAQ. Its value has plummeted since, though, and that 8 cents on Monday would be around 1.5 cents today.

MoviePass, which charges a flat monthly fee for an unlimited (with restrictions) number of movie tickets, does not get a discount from exhibitors and so its success relies on promotional tie-ins and the hope that subscribers will use it modestly. Big cash deficits and doom-and-gloom market predictions have led Helios and Matheson to experiment with MoviePass’s format, introducing promotional bundles that limit the number of tickets used in exchange for other perks.

Recently, surge pricing was enacted, requiring audiences to pay an additional fee (usually a couple of dollars) on tickets to popular screenings. MoviePass has also blacked out certain films, where demand was so high that exhibitors and MoviePass can’t make a deal.

Currently, Mission: Impossible – Fallout is completely blacked out in some markets. The film opened today and is expected to gross between $50 million and $80 million and top a box office that will also see the debut of Teen Titans Go to the Movies.

Some pundits are calling this a death knell for MoviePass, which has been heavily scrutinized almost since it was announced. Cash flow has been an issue for big internet companies like Netflix as well, but the participation and investment of the larger entertainment community has mitigated the potential for disaster in a way that MoviePass has not managed to do.

It is not clear what Helios and Matheson’s long-term plans are to staunch the bleeding and bring MoviePass back online for good.

More on this as it develops.