Rapid Response: Using failure as a launchpad, w/MoviePass’s Stacy Spikes

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1:25And right now, you can get six months of Rippling free when you sign up at rippling.com slash scale. That's R-I-P-P-L-I-N-G dot com slash scale. Don't get sad, get rippling. Terms and conditions apply. It was really my first time not leaving something I had built, but forcibly getting kicked out of something. And I think the challenge was it was very public. Everybody kind of started saying, well, did the two white guys who ran it into ground, were they the founders? A lot of people didn't even know about Hamei and I, right? They didn't know about two African-American founders who came out of tech and shook up the movie industry.

2:19No one had seen a black tech founder media story. And so it kind of became a life of its own. When it became available to buy back, I was like, I can't let the movie end like that. You know, we got to write a better ending.

2:42That's Stacey Spikes, co-founder and CEO of MoviePass, the movie ticket subscription service that had an outsized impact on entertainment culture and then a very public fall and is now back again looking to revive its relevance. I'm Bob Safian, former editor of Fast Company, founder of the Flux Group and host of Masters of Scale Rapid Response. I wanted to talk to Stacey because there's a thin line between impassioned founder belief in an idea and impractical founder delusion. His journey is like an Oscar-worthy script with a final scene still to be finished. The movie business has changed dramatically since Stacey originally launched MoviePass, but he says the idea behind the company, making theater going a regular habit, is more important and more possible than ever.

3:30He shares key lessons from his initial high-profile fallout, how he's applying them now, and insights from his book, Black Founder, about the pressure on Black CEOs. Stacey argues that there's power in being an outsider for the movie business and every business.

3:57I'm Bob Safian. I'm here with Stacey Spikes, the CEO of MoviePass. Stacey is also the author of the book, Black Founder, The Hidden Power of Being an Outsider. Stacey, thanks for joining us. Bob, thanks for having me. So you launched MoviePass a decade ago, an intriguing, clever idea to boost theater going, turning it into a subscription captured a lot of popular attention. But you were forced out of the company. And after that, the business collapsed. Your successors have been indicted. And yet here you are back again looking to revive the company out of bankruptcy. Why go back down this road?

4:40every great movie. The first act is everything seems like it's going okay. And then it goes awry. But we all know the third act is the most important fun part. And that's what this is. And so we helped change the industry. And I think that story was unfinished. So you buy the company back in the midst of this pandemic. So how do you approach this sort of renovation project. It's not the same company as when you left. It's not the same company as maybe you would want it to be. So oddly enough, I'd kind of moved on, licked my wounds, figured, oh, well. But during COVID, people kept posting and saying, I wish I had my movie pass.

5:22And we saw a lot of those popping up. And then when we found out that there was an opportunity to buy the company back, it was, well, let's take a serious look at it. Is it mission accomplished with the subscription side of movie going? And we felt there was still room to grow and there was still an opportunity. And so we talked to customers from the past. We talked to all the studios and we talked to all of the theaters. And it was kind of a unanimous feeling that if we could come back, it'd be great if we would. So it wasn't just a crazy founder who couldn't let go. I think it was doing some real analysis and asking the stakeholders in the marketplace, would you like to see this product back, even though there are other existing products since we left?

6:13In 2017 and 2018, there was still resistance to MoviePass or subscription as an idea, and the pandemic changed all of that. You relaunched a beta version last fall with an adjusted business model based on credits. Can you explain how you settled on that as the model, at least the test at this point, and how it works? The old MoviePass, you signed up, you paid a monthly fee, and you got 30 credits. And whatever movie you went to was one credit. And at the end of the month, you'd start over again. So you could, in theory, go to 30 movies anywhere you wanted at any point. There were two problems with that.

6:59One, a partnering theater where perhaps we were buying wholesale and doing a deal with, you couldn't tell the difference between that theater versus going to another theater that we're paying full price for that ticket. We wanted to be able to differentiate the value to the consumer of those two different players. The other thing was it allowed us to drive traffic at off-peak times. So what you're able to do in the marketplace is called yield optimization. You're able to drive traffic and reward that traffic at a lower price for when you're going during off-peak times. If you want to go during peak times, you're going to use more of your credits because you're saying, okay, I want to go Friday night, opening weekend, seven o 'clock show, right?

7:51So you couldn't do that in the old system. And so with this new way, it makes it much more of an open marketplace where the value exchange that we're seeing, they're seeing. And so now that's better for everyone. So if it costs you more, it costs us more. If it costs us less, it costs you less. And this sort of variable price I mean, we're seeing this expand in theaters in other ways, independent of MoviePass, about what times you go or even what particular seats you might choose in the theater. Yeah. So we're starting to see price testing. There's seasonal price testing. We price test at different levels.

8:35So whether it's premium format, IMAX format, 2D, 3D, you have the life cycle of a film. It's early release where the prices are higher. It can be in a later stage where it's at a second run theater. So I think that that is a constant thing that is always going on. It always has been going on where the only difference is you're able to use AI and machine learning to do that at a faster, more effective way than you used to in the past where you just kind of had to set a time of day and they would know the box office would charge at a different time or a different format. Certainly in the earlier iteration of MoviePass for the unlimited passes, the pricing became a particular problem.

9:25How are you going about figuring out what you can charge? Is that based on, again, experimentation? So you have to constantly adapt and you have to constantly test to a whole new generation subscription was an idea that legacy media companies just never considered. And yet we all started to shift when Netflix and Spotify started to change the media landscape. They had a reoccurring business model. And that's where I think there's a maturity for the cinema business to have that model because a reoccurring business where you don't have to acquire the customer over and over is a better business to be in.

10:11But right now, the movie industry has to reacquire the customer every single time. So I think the biggest model comparison I would say would be in Airbnb, the seat you're going to rent for two hours. Do I want to go to a really big screening with 500 seats? Do I want to go to a dine-in burger place? And what we've figured out with the credit system is you can basically bake in a margin in that decision-making process. There was a Mather report that was run when I was CEO of the company the first time. And they found that MoviePass increased the average person's attendance by 111 to 144%. And so we know that subscription increases behavior.

11:01And the idea is making moviegoing more of a habit for more people improves the business for everyone. The movie industry in the 80s started focusing on what we call incremental spend. So you said, OK, we're not going to get more people. So it's like bigger sizes, bigger drinks. Let's add variety. They wanted to move more and more into the restaurant business where each time you went, you had a higher purse spin. Problem is, it became really attractive for the 50-year-olds, but it was no longer attractive for the younger people. You were pricing out your next legacy of consumers, and you started to see a drop in attendance.

11:50As we started to price them out, they started Netflixing and chill and just watching content on their phone. And we didn't adapt on focusing on frequency. And so MoviePass focuses on frequency and volume, where if I can increase your attendance by 144%, I'm making money there versus I need to focus on incremental spend. And now a lot of the attention that came to MoviePass was around the unlimited option. That's not currently in the beta or is it? Is it something that you're testing? Yeah, we're testing a version of the unlimited right now. When I was CEO at the$30 price point, it was more viable.

12:36Once you got a certain number of circuits to participate in letting you buy in bulk, the$30 unlimited was doable. At$10 a month when the private equity group took over MoviePass, that's not sustainable. I don't believe you can ever make$10 a month work for, in theory, 30 movies a month. So is MoviePass 2.0 open in all markets yet? It's nationwide. What we did was we took the beta list, the wait list. There was 800 ,000 people on that list. We started in November letting in markets. And then I think the last week of January, we opened up the wait list for all markets. So we've gotten most of the kinks worked out.

13:24You have these bumps along the way. It's a new system, a new model that I don't think anyone has quite done what we're trying to pull off. The theaters are actually further along than we've caught up to. So around 25 % of all of the theaters in North America have already agreed to partner. We've been slow because of some challenges on the product side. We've been slow to onboard all of them. So we need to catch up with them more than anything. We've already done partnerships with 40 % of theaters outside of the big three. MoviePass became so well known in some ways, the discussion of it became bigger than the business.

14:07How much do you worry about the brand getting ahead of the business again? I think the brand is a rebel brand that allows us to have conversations around new ideas. I don't think you can ever get too far over your skis with that because it's kind of an open door. You're like the new kid on the block going, well, what if we did it this way. Let's just try it. Let's test it. When you look at Silicon Valley and you look at companies like Tesla, they have a culture of constant innovation. They have a culture of not being afraid to go throw paint on the wall. And I think that that's the same thing that the movie industry needs.

14:48And us coming out of tech, we had that culture. And so that's what we hope we're bringing to the conversation. This is Mike Nicholas, Capital One business customer and co-founder of Ansett Uncles, a plant-based restaurant and community space in Brooklyn, New York. And he's telling us how they started a product line. We already had a space in the community. The food was an extension of our lifestyle and our values. So we know we wanted to create something that was an offshoot to that. Our pepper sauce. That's my grandmother's recipe. That's like a liquid gold, right? If someone wants to approach us and ask us, what do we do?

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17:49I still hold fast that cinema is the live event of the movie industry. You saw the data that came back on Black Panther. Black Panther was the biggest recent box office that they had, and it was the best performing on their streaming platform. I think out of convenience, we like to have an either or conversation when it's not. It's an and. And so I believe that cinema is healthy and there's a lot of expansive opportunities. I know you're also been exploring like having movie watching happen in the metaverse. So being bullish about cinema doesn't necessarily have to be in a theater. There's this augmented reality meets VR kind of concept.

18:37if you and I decide we're going to go to the movies, can I go to a physical theater and you go in VR and we go see the same movie at the same time and I have on augmented glasses that I might be able to see you sitting in the seat next to me? That's the kind of stuff that we're really interested in because the technology is now here that maybe theaters can get into the game where They honor their theatrical window, but the boundaries of their theater are now beyond the walls of their cinema. So as business people, our identities can be tied up in our professional roles. Was leaving MoviePass a blow for you?

19:26How was that for you to manage? Yeah, it was really my first time not leaving something I had built, but forcibly getting kicked out of something. And I think the challenge was it was very public. Right now, Mark Wahlberg and HBO are making a documentary about what happened at MoviePass. What really happened was what everybody kind of started saying was, well, did the two white guys who ran it into ground, were they the founders? A lot of people didn't even know about Hamey and I, right? They didn't know about two African-American founders who came out of tech and shook up the movie industry. No one had seen a black tech founder media story.

20:14And so it kind of became a life of its own. And you're right. I got branded with it. And when it became available to buy back, I was like, I can't let the movie in like that. You know, we got to write a better ending. Part of the reality was my partner and I as black founders were not able to access growth capital to help grow the business the way we would have liked. And to show evidence of that, the guys who came in just months after announcing they were going to buy the company were able to raise near$250 million just in a matter of months. So the title of your book, Black Founder, The Hidden Power of Being an Outsider, I will say there hasn't often been much power in being a black founder.

21:00So what is the power of an outsider? I think if you're going to decide to be a founder at anything, you're picking a really hard life. You're choosing a journey that most will not succeed. So do it for the passion of trying. And if you're going to go that route, then the outsider aspect is there are a lot of hidden advantages. So one, they're not thinking about you coming for that marketplace. No one's staying awake at night at a Fortune 500 company worried about some kid in their basement, but that's the person that they probably need to be thinking of. The second thing is that you probably have passion for the problem solution that you're looking at.

21:47And all inventions really require this tireless effort at modeling and remodeling and testing and testing and testing. And again, outsiders have that advantage that incumbents don't. When you're running a large scale operations, you just can't have the same nimbleness that a little startup team can do. And then I think the last part is you can surprise the world. I think when you look at Venus and Serena coming out of South Central, you see really unlikely people who didn't have a hope and a prayer to change things. That's where most of the innovation seems to come from. inside of you is the ideas that can radically change the world.

22:36The universe needs outsiders to bring change. If you come from an outsider background, that may give you less confidence, maybe, but it may also give you more resilience because you've been facing that kind of mountains of no's your whole life. How do you modulate those two sides of it? I think that you're going to get knows, but you learn how to run through walls better. Look, some of it's pattern recognition, right? Investors want to invest in things that they think are going to make them money back. They're not racist in a sense that they're saying, I'm not going to invest in that person because the color of their skin or their sex.

23:16They're saying, I want to bet on horses, I think, can get across the line first. So it becomes more about how does a person emotionally deal with the world that's not used to seeing them as the answer. And once you realize it's about pattern recognition and somebody has to start to change, there was one black baseball player. There was one black basketball player. There was one black football player. Until that happens and someone gets through the wall and then people see success can look different, you can't be what you can't see. And so the more you see something happening, the more you believe it can happen for you.

24:03Today, only 1 % of African-American founders are capitalized. 1%. That's crazy, right? And so when you take all women, all minorities, they only equal 3%, then you're really talking about a world that has to change radically and it will change, but we're the early ones who are starting that change. There's a lot of burden to be not just obviously trying to do something unexpected and difficult and surprising in your business, but to stand for all these other things also and be willing, as you are in your book, to share a lot of details about yourself and your background that are very personal and challenging.

24:49And, you know, not everyone wants to open all those doors. I think the other thing was I wanted to really be honest about what it means to be a founder. I think so often we get the Hollywood version of it. I was in my dorm room one night and I was working on some code and I had this idea. The math is different. The average founder is actually older, tends to be in their 30s and 40s and be part of a downturn in the economy. So right now, there's a time where more founders are going to be born in this downturn in the economy and all the tech layoffs than any other time. And they are not just college kids in dorm rooms.

25:33There's all these beautiful stories. They aren't the sexy Hollywood, the American cape in the wind guy who had an idea, they're different. Well, Stacey, this has been great. Thanks for joining us. Bob, thank you so much. I really, really appreciate it. Meet Emily Warden, Capital One Business customer and owner of Emily Warden Designs, a handcrafted fine jewelry store in Richmond, Virginia that got its start in a dorm room. I said I was going to try it for a year. I signed up to do craft shows, trade shows, got into a few local boutiques, and then things just picked up from there. Emily's steady success at trade shows gave her the capital she needed to invest in a storefront.

26:17Every cent that was made was going back into the business. I was nervous that we weren't going to get enough traffic, but we had a huge turnout. With Emily Warden Designs firmly establishing itself in the Richmond community, Emily would need to significantly increase inventory in order to keep up with demand. and she looked to her Capital One business card for support. The purchases were so high, I needed to get a business credit card, and I looked at Capital One. The options and the cash back was so amazing. It gives me even more of a push to take a leap in getting one or two extra stones because I have that extra cushion.

26:57To learn more, go to CapitalOne.com slash business cards. When we talk about scaling a company, we often talk about products, markets, capital. But you know what the real engine of scale is? Your people. Your managers, producers, marketers, they're not just staff, they're the team you trust to bring big ideas to life. And that trust goes both ways. They count on you for clarity around onboarding, benefits, and yes, getting paid on time. That's why so many companies use JustWorks. Just Works takes the complexity out of HR, so you can stay focused on scaling what matters, your people. Just Works.

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28:23Masha Mactonina, Adam Skuse, Alex Morris, and Tucker Ligurski. Our music director is Ryan Holiday. Original music by Eduardo Rivera, Ryan Holiday, and Daniel Nissenbaum. Sound design and audio editing by Liam Jenkins and Tim Lou Lee. Mixing and mastering by Brian Pugh. Special thanks to Aria Finger, Saida Sapieva, Jodine D 'Orsay, Alfonso Bravo, Colin Howard, Tim Cronin, Kelsey Capitano, Samia Puta, Anna Pizzino, Sarah Tartar, Luisa Velez, Justin Winslow, Nikki Williams, Chineme Azuquena, Marielle Carriker, and Katie Blazing. Visit mastersofscale.com slash rapid response to find the transcript for this episode and to subscribe to our email newsletter.

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