It’s the holiday season, and whether you love the Oscar contenders, the latest Star Wars epic, or fun family flicks, that means it’s movie season too. So let’s check in with the movie industry, and see how they’re doing in Hollywoodland.

Take a look at U.S. box office revenue in recent years, with a forecast from PWC out to 2021:

Not too shabby, U.S. theater owners! In an age of streaming video, YouTube, man caves, and 90-inch TVs, you’re actually growing sales! Impressive! You must be bringing movie-goers into your cinemas in droves! Let’s take a look at ticket sales.

Well, that’s funny! Numbers of tickets sold are actually seeing a trend of long-term and consistent decline! How are theater owners managing to increase revenue if they are selling fewer and fewer tickets?

Well, that explains it! Movie ticket prices are rising faster than ticket sales are declining, so movie theaters are managing to increase revenue on the backs of fewer and fewer customers, by sticking it to them with higher ticket prices. That’s a sustainable plan for future growth, right?

No, no it is not.

And that’s the problem that movie theaters face. Note that I’ve been talking about theater owners, not movie studios. They have the worldwide box office and digital rights and DVD sales and merchandise and lots of ways to monetize content. But it is the theater owners who are in a pickle. And here’s why:

The problem is even worse when you look at the demographics. Movie bible Variety looked at this issue recently, with dire news about younger movie attendees:

• In the past six years, the number of frequent moviegoers in the millennial age group fell nearly 20%, according to data compiled by the Motion Picture Assn. of America. “Movies aren’t the only choice anymore,” says Jeff Bock, a box office analyst at Exhibitor Relations. “Now there are other options with Netflix and HBO and video games. That’s taken a toll.” Unless the studios find a way to make movies that engage younger viewers, Bock warns, their entire business model risks collapsing. “In any industry, if you don’t have your hooks in the current generation, you could lose your entire business eventually,” he cautions. “Hollywood has to make things that resonate with this demographic or they won’t just lose them – they’ll lose the generation after that and the one after that.”

When 40% of the potential audience for movies goes to the show only once a year, or less, that’s a problem. Getting paying customers into showings is the primary challenge that theaters face. And a few services are using subscription business models to fill those empty seats.

MOVIEPASS

For the first six years of its life, MoviePass had a sustainable, if stolid, business model. Subscribers paid about $50 per month for as many movies as they wanted to see. Even if the average ticket price was $10, most subscribers did not see more than three-to-five movies a month, and the whole system held up. However, not that many people turned out to be willing to pay $50 per month, every month. In the poll results above, 7% of those polled say they see one or more movies per week, but how many of even those cinephiles are willing to pay $600 per year on that one form of entertainment? Compare that to the annual cost of your cable bill or your Netflix subscription … and you see that there is a ceiling on that business model.

Well, in August this year, MoviePass dramatically lowered its prices and raised its ceiling, shifting to a $9.99 per month price for unlimited movies! And each time a subscriber goes to a theater, MoviePass pays the theater the full price for that ticket! Okay, I’m a longtime journalist, and I try in these columns to stick pretty much with a neutral point of view, tell both sides, and not use two exclamation points in a row. But come on! A subscriber pays MoviePass $9.99 per month for unlimited movies, and MoviePass pays the theater full ticket price every movie the subscriber sees!

And in the first week of December, MoviePass began offering an annual membership of $89.99 per year, a further 25% discount — if you are willing to believe that the company can last another 12 months as it burns through its working capital.

If that seems like an incredible deal to you too, well, you and I are in good company. MoviePass has seen an explosion in membership. A week after the policy changed, it had 150,000 new subscribers. By September, it had 500,000 new members. According to PYMNTS.com, the company expects to have 3.8 million members by 2018.

Of course, there’s still the big question: How long can MoviePass continue to bleed money? How can it possibly survive so long as it is subsidizing its subscribers so heavily? The company offers a couple answers. First, they expect movie fatigue to slow down viewing. Here’s how The Motley Fool puts it, quoting a MoviePass exec:

• In a recent interview, CEO Ted Farnsworth of Helios and Matheson — the company behind MoviePass — claimed the company could be profitable even at $9.95: “$9.95 is like a buffet,” says Farnsworth. “The first time you go, you load your plate. The next time, you take a little bit less. By the third visit, you eat the same amount that you’d eat at home. Based on our historical numbers, MoviePass will be similar.”

The next part of the equation is deep and detailed data. A report at NoFilmSchool.com explains the reasoning and the money behind the business information strategy:

• MoviePass actually intends to put together a giant consumer database of frequent moviegoers and use big data to figure out how and when these moviegoers decide to go see specific movies (MoviePass sold a majority stake in its company to big data firm Helios and Matheson Analytics just prior to its new monthly subscription price announcement in August). Ultimately, the company could help distributors target their key customers much more effectively.

Another MoviePass revenue source will be studios who want to reach MoviePass’s growing user base in order to market movies to them. The company has already announced one deal like this, according to a Deadline Hollywood report. Also see this Dec. 11 report at StreetInsider.com.

Also, MoviePass says that it is helping theaters survive by substantially boosting concession revenue. Consider this, from the same PYMNTS.com article:

• On average, MoviePass subscribers spend 123 percent more on concessions than a regular moviegoer, since the subscription model makes the negligible ticket cost an afterthought, Farnsworth pointed out. This makes the arrangement even more lucrative for theater owners, considering they make 80 percent of their sales off concessions – especially now with an exploding MoviePass subscriber base, he added.

But is MoviePass solving the fundamental challenge facing theaters, the one I pointed out at the top of this column? Is MoviePass boosting ticket sales and reversing the trend of smaller and smaller audiences? According to the company’s own data, reported in Deadline Hollywood:

• To date, one MoviePass collaboration was with Bleecker Street’s Thanksgiving stretch release The Man Who Invented Christmas which the ticketing agency reports that they “realized a further 48.3% lift to ticket purchases for the title against a statistically relevant control group which was not a part of the marketing campaign.” To date, The Man Who Invented Christmas has grossed $4.3M at the domestic B.O.

Okay, so theater owners are dancing in the streets, right? They are filling more seats, reimbursed at full price, and with increasing concessions. But as it turns out, several big theater chains are reacting with increasing hostility to the MoviePass model. Most of all, they see the situation as unsustainable.

My intuition is that theater owners suspect MoviePass is running some kind of long con. Look at the fighting words and insults in this AMC press release:

• a small fringe player … MoviePass will be losing money on every subscriber seeing two movies or more in a month … Bloomberg today called it a “crazy plan.” AMC noted that it is not yet known how to turn lead into gold. … that price level is unsustainable and only sets up consumers for ultimate disappointment down the road … in this shaky and unsustainable program.

Yikes! AMC is really pissed off! But the way MoviePass has structured its system — paying for tickets through MasterCharge — there’s no easy way for AMC to opt out, so far.

The AMC press release points to several other movie chain fears: First, that MoviePass will in the future use its massive subscriber base to extract discounts on ticket prices, and second, that MoviePass’s ultimately certain failure will set up consumers for disappointment and perhaps a backlash that will hurt theaters long into the future. Add to that another concern, as expressed by StudyBreaks.com, “AMC’s stock has been dropping as of late, and they really depend on their own loyalty programs instead of an outside party, especially since they have invested so much into them.” That is, theater owners worry that their own subscription and membership clubs will suffer because customers will prefer to join MoviePass instead.

And maybe the MoviePass bargain really is just a scam, according to Seeking Alpha, who expects shareholders to be left cold, while majority owner Helios and Matheson come out A-OK:

• Moviepass will run out of cash. Once MoviePass fails, financing in place with Helios and Matheson almost guarantees that Helios and Matheson will be flush with cash while leaving Helios and Matheson’s shareholders footing the bill.

Well, win, lose, or draw, MoviePass has proved that there IS a huge hunger for a reasonably priced subscription service that brings customers into movie theaters on a recurring basis.

CINEMARK’S MOVIE CLUB

One chain launched its own subscription service to compete with MoviePass just this month. Its business model is not nearly as crazy, but may be more sustainable. My knowledgeable colleague at Subscription Insider, Dana Neuts, has the lowdown on the service:

• The monthly membership program gives members one discounted 2D adult movie ticket every month for $8.99 plus 20 percent off on concession purchases, waived online fees and other exclusive benefits. Unused tickets roll over and never expire for active members; members who cancel have up to six months following cancellation to use their credits. Members can also share the concession discount with one friend per visit, reserve tickets online, buy tickets in advance, and purchase additional tickets at $8.99 each.

The little perks may make it a reasonable alternative to MoviePass, especially if you like this chain and only see about one movie per month. More to the point, the service positions Cinemark to be a leader in the arena in the event that MoviePass crashes and burns.

The LA Times got Cinemark’s CEO to explain his strategy:

• Mark Zoradi, chief executive of Cinemark, said the subscription is not targeting people who already go to the movies multiple times a month. Instead, the chain is hoping the deal will encourage people who go to three to four movies a year to increase their annual moviegoing to about six trips.

Variety shed a little more light on the move, detailing the way the subscription service goes head-to-head with MoviePass:

• Cinemark said that it has developed Movie Club after it conducted extensive consumer research and studied the best subscription program models, both in and outside of the entertainment industry. “Throughout the research process, consumers resoundingly preferred a monthly membership program with ticket rollover benefits that allows them to accumulate credits, reserve their seats in advance with no online fees and enjoy significant discounts on concessions,” the company said.

MORE COMPETITION COMING?

It may not just be MoviePass and CineMark that are jumping into the subscription service. Here are a couple other tantalizing hints at possible future theater subscription options.

— Amazon is offering early ticket availability through its Amazon Prime service, as reported by TechCrunch. It’s just a toe in the water, but don’t count Amazon out of any market it is eying.

— Regal and AMC are looking at their own discount pricing services. The Motley Fool has more on this:

• As movie subscriptions are meant to drive frequency but at a discount, another tactic that could achieve the same effect is more dynamic pricing of theater seats. Both Regal Entertainment (NYSE:RGC) and AMC are each exploring “alternative pricing” strategies to lure people to theaters rather than a full-fledged subscription. That means charging more for better seats and less for worse ones, such as the front row. AMC CEO Adam Aron said during the latest earnings call, “It doesn’t cost you any money to cut the price of something that you never sell any of.” Thus, with discounted seats, each company hopes to make moviegoing more affordable, driving greater traffic overall. Regal, for its part, is partnering on a similar dynamic pricing initiative with partner Atom Tickets, which will roll out the Regal pricing model in early 2018.

Insider Take

The movie theater business is currently trapped in a cycle of charging higher prices to a dwindling and aging audience. With subscription services such as MoviePass and Cinemark’s Movie Club, the industry is seeing an alternative. A value-based option tied to recurring revenue through subscription may help stem viewer flight from cinemas and even bring more viewers into seats. The amazing viral success of MoviePass’s all-you-can-eat service shows that there is an audience for alternative ways to engage with your friendly neighborhood movie theater.