Finance Weekly News Update July 7, 2018 – July 13, 2018

MoviePass Introduces Surge Pricing

Disis, Jill
CNN.com

Posted 7/5/2018

Key words and Definitions

Cash flows – money flowing into and out of a business.

Liquidity – a measure of a firm’s ability to meet short-term obligations.

Liquid assets – assets that are convertible to cash in a short period of time without significant loss of value.

Summary: Key Points in the Article

MoviePass is changing its pricing metric from a flat monthly fee to a pricing model that triggers a higher fee for high-demand movies. MoviePass’s current pricing scheme allows customers to see one movie a day for $10 a month. Under the new pricing model customers might pay a few dollars more for a movie seat during peak times. The new pricing model is known as surge pricing.

The current pricing model is not working and MoviePass loses money every time a customer goes to the movies. MoviePass lost $40 million in May 2018 alone and the parent company, Helios and Matheson (HMNY), is running out of cash. Currently, HMNY is trying to raise $1.2 billion to stay in business. If they can boost customers from the 3 million current customers to 5 million by year’s end they can become profitable. The company’s stock price recently closed at 19 cents a share.

Thinking Critically Questions

1. Why did MoviePass change its pricing model?

2. Why would MoviePass introduce an initial pricing model that loses money?

3. Why does the firm need to raise money?

Multiple Choice Questions

1. MoviePass intends to raise another via stock and debt issues.
a. $1.2 billion
b. $3.4 million
c. $5.0 billion
d. none of these

2. When a firm’s current assets are valued lower than its current liabilities the firm’s current ratio is;
a. below 1
b. above 1
c. indeterminate
d. none of these

3. The new pricing model adopted by MoviePass is called pricing.
a. stable
b. periodic
c. surge
d. none of these