Desiccated Corpse of MoviePass Reaches Settlement With FTC Over Fraud Allegations

Illustration for article titled Desiccated Corpse of MoviePass Reaches Settlement With FTC Over Fraud Allegations
Photo: Richard Drew (Getty Images)

Disastrously failed theater-ticketing startup MoviePass’s corpse has been rotting for years, but its former executives have only now reached a settlement with the Federal Trade Commission for allegedly using fraudulent and deceptive tactics to abuse its users.

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MoviePass, for those who don’t remember, was a subscription-based service initially offering once-a-day movie tickets in exchange for a $9.95 monthly fee. The entire enterprise essentially relied on investors subsidizing the signup of so many users that MoviePass could muscle big theater chains like AMC into signing deals—a moonshot strategy that never panned out, saddling the company with millions of users that were consuming far more in tickets than MoviePass was collecting in subscription revenue. By the time the house of cards collapsed, MoviePass had blown through hundreds of millions of dollars in losses.

The startup used a variety of increasingly depraved strategies as lifelines, including imposing baffling restrictions on how many movies could be seen and when, resetting passwords to hinder users’ access to accounts, a ticket “verification” system to discourage use, “trip wires” designed to block users who obtained too many tickets, and re-enrolling users who had already ended their subscriptions. It regularly ran out of money to buy tickets, infuriating subscribers who often didn’t find out until they were already at the theater.

The FTC’s Consumer Protection Division wrote in a complaint released on Monday that MoviePass and its CEO Mitchell Lowe, as well as now-defunct parent company Helios & Matheson and its CEO Theodore Farnsworth, had gone to extreme lengths to deny subscribers access to services they had paid for, violating multiple federal laws. The FTC also alleged that MoviePass had not taken steps necessary to protect consumer data, such as by storing the names and financial information in a plaintext database that was left exposed to the public internet without a password.

The settlement, also announced by the FTC on Monday, may seem underwhelming. The FTC wrote that it essentially bars the company’s operators from misrepresenting their business endeavors in the future and mandates any companies controlled by MoviePass, Helios & Matheson, or Lowe agree to implement comprehensive security programs:

Under the proposed order, MoviePass’s operators are prohibited from misrepresenting the services they provide and must implement a comprehensive security program requiring them—and any businesses controlled by MoviePass, Helios, or Lowe—to identify external and internal security risks and take steps to address those risks. In addition, MoviePass’s operators must obtain biennial assessments of its information security program by a third party, which the FTC has authority to approve, to examine the effectiveness of the program. Finally, MoviePass’s operators are required to notify the FTC of any future data breaches, and a senior executive must certify annually that MoviePass’s operators are complying with the data security requirements of the settlement.

The FTC singled out three tactics that it said company executives deployed in order to screw over users: the false claims of “suspicious activity or potential fraud” used to justify resetting passwords, the ticket verification system that regularly “blocked thousands of subscribers” due to technical issues, and the
“trip wires” designed to prevent MoviePass from shelling out for too many tickets. It also said the company’s marketing practices were deceptive, and that Lowe and Farnsworth were aware of all these misdeeds.

“MoviePass and its executives went to great lengths to deny consumers access to the service they paid for while also failing to secure their personal information,” the acting director of the consumer protection bureau, Daniel Kaufman, wrote in the announcement. “The FTC will continue working to protect consumers from deception and to ensure that businesses deliver on their promises.”

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The FTC noted in the announcement that the proposed settlement “does not include monetary relief for consumers”—not that anyone was expecting any. MoviePass shut down and ceased all operations in September 2019 after exhausting its financial reserves and failing to find new investors and soon after declared bankruptcy, while the parent company filed for Chapter 7 bankruptcy in January 2020.

Last year, MoviePass settled a class-action lawsuit brought by investors at the bargain-basement price of $8.25 million. The company also reached a separate settlement with four district attorneys’ offices in California last week over similar claims of “numerous unlawful, unfair” practices, with Lowe and Farnsworth agreeing to pay $400,000 in civil penalties and restitution. Yet that may not mean an end to its executives’ legal trouble. Last year, MoviePass acknowledged that alongside the FTC and California investigations, it was also being investigated by the New York Attorney General and Securities and Exchange Commission.

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At least one of the former executives of MoviePass has managed to squiggle away into a new venture. Co-founder Stacy Spikes, who was fired by Helios & Matheson after it acquired MoviePass in 2017, has since launched PreShow Interactive, a company that allows gamers to watch ads in exchange for in-game currency. It was originally intended to distribute movie tickets as rewards instead.

In March 2021, the specter of a MoviePass relaunch briefly arose after a zombie website (“moviepass.ventures”) came online, featuring little other than a countdown meter to March 22 and the text “the movie is about to start.” While it was initially unclear who actually registered the website, the operators later revealed it to be a hoax intended to trick reporters into covering it.

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DISCUSSION

killa-k
Killa K

In March 2021, the specter of a MoviePass relaunch briefly arose after a zombie website(“moviepass.ventures”) came online, featuring little other than a countdown meter to March 22 and the text “the movie is about to start.” While it was initially unclear who actually registered the website, the operators later revealed it to be a hoax intended to that successfully tricked reporters into covering it.”

FTFY

In all seriousness, I find it difficult to be mad at MoviePass. I mean, it was absolutely a Ponzi scheme and in that sense they deserve every fine the FTC throws at them and more (honestly, how many rich people do you have to screw over to get thrown in jail?), but it prompted AMC and Regal to launch their own (sustainable) subscription services. I watched a ton of movies I wouldn’t have otherwise. And to top it off, if they hadn’t run out of money when they did, COVID would have put them out of business in a heartbeat.