Multi-sided platform business model means that the company has to include the wishes and demands of different sides of the business functioning. This business model utilizes the efforts and creativity of a number of contributors.
In such arrangements, “business opportunity emerges for a multi-sided platform when distinct groups of economic agents wish to interact but fail to do so because of too high transaction costs.” In the case of MoviePass, there are three distinctive sides: moviegoers, theater owners, and film studios. The most crucial issue arising in such circumstances is the decision on what side to become central.
For example, businesses may decide to focus on film studios and sell expensive subscriptions or provide special offers giving an opportunity to watch films of a particular film studio. MoviePass’s board decided to focus on the demand side and provide cheap monthly subscriptions for a broad number of users.
To show the relevance of this issue, there is a sense to refer to key metrics showing the issue’s existence. According to the corporate presentation of MoviePass, it is estimated that in less than a year, MoviePass will gain approximately 1,5 million users.
For the whole year from August 2017 to August 2018, MoviePass was expected to earn 2,1 million subscriptions. It is much faster growth in the first year of functioning in comparison to other subscription-based services, like Hulu, Spotify, and Netflix. It is a highly successful result for a new company without brand recognition.
Another crucial issue that MoviePass needs to address is the way how to determine the appropriate price for the subscription that will satisfy the needs of all interested sides. MoviePass’s business model is organized in the form of flat-rate pricing. In these settings, the cost of a commodity or service depends on the quantity that customers consume, while the price is not influenced.
MoviePass’s business model may face two serious problems that may destroy their plans for a successful business. Firstly, to be profitable, the behavior of the majority of MoviePass’s subscribers should be irregular moviegoers. Hence, there is a risk of failing to meet the expected income if the number of subscriptions and the number of irregular visitors is low.
Secondly, the company’s market analysts may be incorrect in their predictions that 50-60% of subscribers will be occasional moviegoers. Instead, if most subscribers will attend a movie theatre more often because of the opportunity, the business model would be unprofitable.