MoviePass settles FTC allegations that they limited usage, exposed user data

https://www.ftc.gov/news-events/press-releases/2021/06/operators-moviepass-subscription-service-agree-settle-ftc

by aarestad • 5 years ago

309 163 5 years ago

That's amazing. Matt Levine covered it in his column today as well--haven't had time to read it yet, but it's probably good as usual https://www.bloomberg.com/opinion/articles/2021-06-08/moviep...

justusthane• 5 years ago

I suspect you're downvoted for recommending something you didn't read, but yes, it is very good:

If you sell $20 worth of movie tickets for $10, people will sign up, you will have rapid user growth and you can probably get someone to think that that’s valuable, even though in fact every user that you add costs you $10.
But — unlike most of the “MoviePass economy” — MoviePass was not actually a venture-funded startup, did not raise piles of money, and was somewhat constrained by economic reality. So at some point the company looked for ways to make this insane business model work, and it found one. It’s pretty simple: What if MoviePass collected your $10 each month and then, when you asked it for movie tickets, it ignored you? Then it could keep collecting your $10 a month without spending money on tickets. Eventually you’d get annoyed by not getting what you paid for, and you’d try to cancel your membership and get your money back, but MoviePass could ignore that too and keep collecting the $10. Giving people unlimited movie tickets for $10 a month is a good way to get rapid customer growth; telling people you’ll give them unlimited movie tickets for $10 a month, but not actually doing it, is a way to pivot to profitability.

jcwayne• 5 years ago

Add in a startup fee and it would be a gym membership.

Chris204810• 5 years ago

I suspect a lot a corps sub to a similar model:

Make it not-obvious when something is billed, and make sure never to tip the customer off (e.g. by sending a monthly invoice). More than one company made it very easy to activate non-obvious reoccurring payments, and then communicate nothing wrt to the fact.

On that note: Fuck you NowTV.

also non too happy with Paperspace.

lotsofpulp4• 5 years ago

The government knows the executives at MoviePass committed theft, but we will not see any criminal charges filed.

twinkletwinkle_2• 5 years ago

Crime is a social construct.

edit: A poor person who steals is charged. A rich person who steals behind the facade of a company is not. We call the poor person a criminal. It's entirely divorced from an actual moral framework, but simply constructed. I was agreeing with the commenter I replied to.

mdavidn• 5 years ago

So are criminal charges.

tolbish2• 5 years ago

I don't understand why you are getting downvoted. When people say they support "Law and order" they are not talking about all crime—they are not referring to fraud or market manipulation for example (white collar crime). They are referring to enforcing laws on just a certain subset of society.

Chris204810• 5 years ago

Simplistic. A poor person is not usually trusted, so their thefts are often more egregious.

legitster6• 5 years ago

I don't think this necessarily precludes formal criminal charges. Even the dissenting opinion was like "this is clearly a crime, but outside of the FTC's authority".

lotsofpulp4• 5 years ago

It is a prediction based on how many times I see SEC/FTC/FCC/FAA/other government agency report on misdeeds, but it never results in any criminal charges against any person. The responsible parties are never even named, effectively making it so all these investigations and reports do not result in the slightest bit of deterrent.

Another even better example was linked in another comment in this thread:

https://www.sec.gov/news/statement/stein-waivers-granted-dis...

diogenesjunior• 5 years ago

“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,”

As expected.

forgotmysn2• 5 years ago

im not sure id put MoviePass in the same category as FAANG

mc322• 5 years ago

It’s different degrees of abuse. Moviepass committed fraud, and FAANG are not committing that kind of crime, they do engage in sketchy things. The whole ad business model is sketchy, getting people addicted to “binging” on content is questionable, Amz and its commingling issues, copying resellers, it’s terrible review system and well, social media siphoning personal data unscrupulously.... that’s not exactly stand up catagory.

0xbadcafebee• 5 years ago

s/big tech/business/

justapassenger• 5 years ago

MoviePass was as much as much of a tech company as WeWork. Having a website doesn’t make you a tech company.

vmception• 5 years ago

The VCs involved are what determine whether any company is a tech company

It is how they can convince others to use a favorably high revenue multiple for selling any portions of the business to other people

There, saved you some time

reidjs• 5 years ago

I sort of like the peopleware description of technology "anything that didn't exist when you were a kid is technology"

In that sense movie theater subscriptions counts as technology. Is moviepass still dumb? Yes.

Someone1234• 5 years ago

If a private individual did the things set out here they'd be criminally liable. When a company executive orders employees to do these things, they're not facing any criminal complaint at all (any of them). See also Wells Fargo multiple thefts (both fraudulent accounts with fees, and literally entire homes/all possessions).

It is pretty evident that many laws are constructed (e.g. CFAA) wherein there's one rule for individuals and a completely different rule for executives/companies.

I understand that the FTC themselves cannot jail people. I don't understand why the justice department cannot.

cobrabyte2• 5 years ago

How this isn't a criminal case is beyond me. The dissenting judge is correct: if there is no monetary penalty, what's the point of the judgment?

Chris204810• 5 years ago

If corps are people, maybe they should receive jail sentences as such - and then their executives & beneficial owners can carry them out based on liability. A CEO that takes full control and makes a one-man-shop would therefore be fully liable for any sentence received, and can only avoid this be sharing control.

leesalminen2• 5 years ago

So if I were to own 1 share of $AMZN, I’d be criminally liable for anything the corporation does? Would I do 10 minutes in jail or something?

notyourday• 5 years ago

If corps are people, maybe they should receive jail sentences as such - and then their executives & beneficial owners can carry them out based on liability. A CEO that takes full control and makes a one-man-shop would therefore be fully liable for any sentence received, and can only avoid this be sharing control.

Not shareholders but the officers and directors of the company. We already have this for financials under Sarbanes-Oxley Act of 2002. There was lots of whining that they could not possibly sign off on it because the financials are too complex and with personal criminal and civil liability for CEO/CFO there would be no CEOs/CFOs that would take it. Act got passed and, as if by magic, CEOs and CFOs decided that taking personally the criminal and civil liability was OK.

gogopuppygogo• 5 years ago

No one would run or invest in a company within a country with such a law. It’s basically a global world. Anyone intelligent would leave.

jedberg3• 5 years ago

In this case then nothing would happen, because the "person" is "dead". We need some framework for holding actual people liable for the actions of corporations they control.

paulpauper• 5 years ago

This is a joke. fraud is fraud. Civil penalties are not a good deterrent

cobrabyte2• 5 years ago

I agree, but they weren't even penalized, so there's zero deterrent. It appears the court took into consideration that the company is bankrupt but failed to see the apparent criminal action taken by the company and CEOs.

leephillips2• 5 years ago

In regard to financial institutions getting away with crime, a former SEC commissioner became exasperated that this had become US government policy by 2015:

“the latest series of actions has effectively rendered criminal convictions of financial institutions largely symbolic.”

https://www.sec.gov/news/statement/stein-waivers-granted-dis...

telchar• 5 years ago

That link is both very damning and very succinctly informative of the problem.

legitster6• 5 years ago

IANAL, but it seems like the AG is still well within their power to press charges and consumers are still free to pursue class action.

bdcravens• 5 years ago

What damages could customers seek? Presumably not much more than the cost of the service, which was only around $20/month.

Kinrany• 5 years ago

I wonder if a general purpose legal framework of applying the same punishment to different types of entities is possible.

That way most laws could be worded in a way that applies to private individuals and all types of companies the same way, but then the actual punishment would be applied differently.

Specifically, when a company breaks the law, the legal framework would explain the way the responsibility should be shared between the legal entity and the private individuals involved in breaking the law.

ocdtrekkie3• 5 years ago

I am frustrated that we continue to have the death penalty for individuals that commit heinous crimes, but we do not have the death penalty for corporations.

I feel like when you manage to harm a billion people at a time, the penalty should be that your company is dissolved, it's assets auctioned off, and the trademarks and domains blackholed.

And then, since I don't support the death penalty for individuals, the C-levels investigated for their knowing involvement in any related schemes, and if proven aware, given prison time and forbidden from ever operating in a management capacity at any corporation ever again.

The problem with corporations is that there is no meaningful disincentive to commit crimes. You succeed, you get rich. You fail, you take your severance, live like a king for a year, and then get hired to do the same at another company. If executive pay is going to come with outsized pay, it should come with outsize risk: Jail executives for their choices when running corporations. For the millions they make, they'll still be lining up for the job.

at-fates-hands• 5 years ago

I would also trot out ENRON as another example, on a much larger scale. The only person in the entire fiasco that actually did serious jail time was Jeffrey Skilling who was sentenced to 14 years and was released in 2019.

SilasX• 5 years ago

Well, CEO Ken Lay might have done serious jail time as well, but he died before sentencing:

https://en.wikipedia.org/wiki/Kenneth_Lay#Enron_bankruptcy_a...

Edit: Given the really suspicious timing, and how the death vacated the conviction, "died".

tacon• 5 years ago

Andy Fastow getting six years is not serious jail time? And his wife got a year. I think they were non-concurrent to allow their young children to have one parent free at all times.

papito• 5 years ago

Corporations are people!*

* until a crime is committed

Black1012• 5 years ago

Everyone should get a corporation at birth, and all actions done by that individual should be done for that corporation. Maybe things would change then.

ardit33• 5 years ago

Thanks Obama for this. He went full on corporate... and of course Trump and Biden are the same. In both Clinton and Bush eras (both Bushes), there was more pushback on some of these behaviors.

swiley• 5 years ago

This is what the chargeback feature of credit cards is for.

legitster6• 5 years ago

First, according to the FTC, MoviePass’s operators invalidated subscriber passwords while falsely claiming to have detected “suspicious activity or potential fraud” on the accounts. MoviePass's operators did this even though some of its own executives raised questions about the scheme, according to the complaint.

I'm going to go out on a limb and say the only reason the FTC was able to establish intent was because someone complained via email or text.

I try not to think about how much illegal activity like this happens all the time that is not prosecutable just because everyone with a modicum of morals was smart enough not to say anything on record.

judge2020• 5 years ago

Yep - i'd be surprised if even a tenth of all white-collar crime is known about.

lotsofpulp4• 5 years ago

Being able to converse in person off the record is one of the big value propositions of being in the bigger cities.

phkahler2• 5 years ago

I thought white-collar crime was usually a person scamming a company. This is a company scamming their customers, which I think happens far more than 10x what we hear about.

Way back in the 90's I had a bank account that paid something like 5 percent interest, but only had a couple thousand dollars in it (maybe). I was between jobs and made no deposits for over a month - only withdrawals and only like 4 of them. I got to wondering about the interest and calculated it various ways. Calling the bank, they confirmed verbally that they use the average daily balance. By my calculations they exactly used the final balance (the minimum for the month). I concluded that someone somewhere realized that changing from "average" to "minimum" would make the bank a few extra bucks. Not a big difference if your balance is fairly stable, but a big deal if it's more volatile. They eventually got bought out a couple times, and interest rates are a joke now anyway.

rdtwo• 5 years ago

I think that’s why folks with morals complain in writing. Folks with soft morals complain via phone call

kevin_thibedeau• 5 years ago

You see this in the evidence of the Arizona lawsuit against Google. They have internal emails from Googlers who dared to complain about the confusing settings for location tracking (How many still work there?). Nothing from the managers who cooked up the scheme.

cs702• 5 years ago

It appears the MoviePass master plan for world domination was inspired by the underpants gnomes of South Park[a]:

Step 1. Charge customers $10/month for unlimited passes to movie theaters

Step 2. Change passwords to prevent customers from getting their passes

Step 3. ???

[a] https://www.youtube.com/watch?v=tO5sxLapAts

Chris204810• 5 years ago

But if that where the case, they could just recover their passwords? From the sound of the "suspicious activity" line, it seems they may have been blocked?

Also, I wonder how the corp avoided chargebacks

richardwhiuk• 5 years ago

Also relevantly: https://www.youtube.com/watch?v=YBO_7UezpbY

kingaillas• 5 years ago

Matt Levine's summary in his current newsletter is this:

"So at some point the company looked for ways to make this insane business model work, and it found one. It’s pretty simple: What if MoviePass collected your $10 each month and then, when you asked it for movie tickets, it ignored you? Then it could keep collecting your $10 a month without spending money on tickets. Eventually you’d get annoyed by not getting what you paid for, and you’d try to cancel your membership and get your money back, but MoviePass could ignore that too and keep collecting the $10. Giving people unlimited movie tickets for $10 a month is a good way to get rapid customer growth; telling people you’ll give them unlimited movie tickets for $10 a month, but not actually doing it, is a way to pivot to profitability."

And the way they ignored you was even worse - changing the passwords on their highest volume users.

Anyway, it's a great read. Subscribe, it is a fantastic free newsletter. Past awesome coverage included the RobinHood stock hijinks. (Bloomberg's Money Stuff newsletter, sub here: https://www.bloomberg.com/account/newsletters/money-stuff)

nerdponx• 5 years ago

Surely some enterprising state AG or class action attorneys could take this up, no?

lacraig2• 5 years ago

Amazing. Makes me glad I signed up with PayPal.

Near the end there so many people were cancelling that if you used a credit card they would, without your consent or interaction, start your service up again. https://www.mentalfloss.com/article/559352/moviepass-reinsta...

smaili• 5 years ago

Couldn't users just go through the reset password flow or did MoviePass disable that as well? Not saying this isn't bad just trying to understand how far MoviePass went to stop users.

ivan888• 5 years ago

Not sure, but I would be happy if this case was brought even if users were still able to reset their passwords to access the service. This would mean that the FTC takes dark patterns that attempt to prevent a customer's rightful use of a service seriously.

If MoviePass had concerns about losing money on customers who had not violated any terms, the right thing to do would be to re-evaluate their plans/pricing.

JMTQp8lwXL2• 5 years ago

Unpopular opinion, but MoviePass could have survived a lot longer if they had more funding. I think there could have been a real opportunity with establishing themselves the main funnel to getting consumers to physical theaters. They couldn't hold on long enough to see what could be possible with such a moat.

s_dev• 5 years ago

They could never survive -- their customer demand came from selling $10 movie tickets for $9 -- funded entirely by investor burn.

A sustainable business is one where you sell cinema tickets for $11 having bought them for $10 with the customer choosing you because you've added more than $1 in value for them.

It's a car racing down a hill. The acceleration looks exponential but it's just going to crash.

Sohcahtoa82• 5 years ago

I always assumed that MoviePass's endgame was to funnel so many of the ticket sales through them that they could strong-arm the theaters into lowering their ticket prices. They thought if they captured the movie ticket sales market, they could tell the theater "Start allowing us to pay only $2/ticket or we'll remove you from our app and you won't make ANY sales!"

I could be totally talking out my ass, but that's what I always figured. I don't see how else they could be profitable.

asciident• 5 years ago

It was more like them selling $300 of movie tickets (I'd watch one a day) for $10. Everyone only used them for the arbitrage.

jermaustin15• 5 years ago

MoviePass could have survived longer if they had more money, and a different business model. The problem is they were letting you go to movies at AMC and Cinemark for less than they bought the tickets, and both AMC and Cinemark said they wouldn't negotiate lower prices for them.

They could have had a small but cult business contracting with smaller theater chains, but they didn't.

They could have also bought tickets in bulk, and sold them through the app, but they didn't.

They could have reserved tickets at premiers and sold them at a markup, but they didn't.

They could have done a LOT of things to make money, but they didn't.

I say this as a onetime holder of more than 1% of publicly available shares. And I think at the time, one of the largest non-institutional shareholders.

Lost a lot of money on wanting a dumb "title".

thirtyseven• 5 years ago

Thanks for the free tickets! Just curious, what was your motivation for investing so heavily if you knew the business model was dumb?

indymike• 5 years ago

The problem is they were letting you go to movies at AMC and Cinemark for less than they bought the tickets, and both AMC and Cinemark said they wouldn't negotiate lower prices for them.

Considering the Cinemark near me is a $1.50 per ticket second run place...

JMTQp8lwXL2• 5 years ago

AMC and Cinemark would have negotiated if the moat was properly fortified is my thesis. They didn't have enough runway to determine the feasibility.

Anyone could've looked at MoviePass' public filings and determined they would be no problem to AMC.

What if Uber and Lyft didn't subsidize ridesharing for years? Yellow cab service would still be the market leader today.

jlarocco4• 5 years ago

Sure, but any business can survive indefinitely if they're given unlimited funding with no expectation of returns.

In your opinion, what's the point of being the main funnel to theaters if you're losing money hand over fist to do so? What was the plan for profitability? Was the goal to somehow strong arm movie theaters into discounted pricing? Why would theaters agree to that when there's no benefit for them to do so, they're the ones with the actual product and it's irrelevant to them if MoviePass survives?

The only way their business model can work is if the majority of customers sign up and never use it, which is a very weird thing for a business to depend on, IMO.

cr18952• 5 years ago

The only way their business model can work is if the majority of customers sign up and never use it, which is a very weird thing for a business to depend on, IMO.

This is essentially the concept of insurance, is it not?

jedberg3• 5 years ago

The only way their business model can work is if the majority of customers sign up and never use it, which is a very weird thing for a business to depend on, IMO.

This is basically how gyms are profitable.

listenallyall4• 5 years ago

Gym membership.

no benefit

Movie theater attendance has been dropping steadily. Theaters, especially today's multi-plexes, are vast wastelands of empty seats the majority of the time. There absolutely is a benefit to them selling more tickets at off-peak times, or to not-so-hot films, or just as an incentive to sell popcorn. Keep in mind all this extra volume would cost theaters ZERO in additional marketing expense.

rrrrrrrrrrrryan2• 5 years ago

I think their main mistake was antagonizing the big theater chains. They should've had their hand outstretched to the chains, consistently, from the very beginning.

The (probably smaller) chains that play ball and negotiate selling cheaper tickets to moviepass get rewarded with more foot traffic, the chains that don't play ball get punished in small ways.

By gently and gradually steering traffic away from AMC, they would've put themselves in a much better position for negotiation.

listenallyall4• 5 years ago

How is buying millions of tickets "antagonizing"? And what intelligent company turns down a 5-million ticket order - at full price! - from a single customer in favor of selling 3 million tickets one-by-one?

Telemakhos• 5 years ago

MoviePass was started by a group of conmen who ran scams in India.

https://www.businessinsider.com/moviepass-owner-emerged-from...

The company was a classic pump-and-dump; it was never supposed to last this long. Somewhere along the line some other, US-based conmen ("serial entrepreneurs") got involved, probably holding the bag for the founders who got their stock profits and bailed.

granshaw• 5 years ago

Classic tactic, similar to insurance companies who advertise great service but throw every caveat in the book at you when you actually file a claim, such that you can’t get to use, you know, what you actually paid for…

There has to be a term for this?

leephillips2• 5 years ago

Yes, it’s called a “contract”.

jermaustin15• 5 years ago

There is... fraud.

totesraunch• 5 years ago

"Under the proposed settlement, MoviePass, Inc ...will be barred from misrepresenting their business and data security practices."

Isn't this how things are supposed to be from the onset? That'll teach 'em!

jrockway• 5 years ago

Hey now, the government isn't messing around:

violation of such an order may result in a civil penalty of up to $43,792

Oh. I think it would actually be more punitive to literally slap them on the wrist.

effingwewt• 5 years ago

And this here is the sad reason why these schemes will always happen.

It's simply more profitable for them to pay the negligible fines/fees.

I'd bet dollars to donuts this would change immediately if there were criminal liabilities involved.

But since corporations are rich people who face no repercussions and who can limitlessly lobby to craft laws bespoke to them, I don't see that happening any time soon.

nullbyte• 5 years ago

For a subscription based business, that’s just extremely unethical

anticristi• 5 years ago

The analogy with Netflix's DVD-by-mail throttling is astonishing. Same fraud but "done with computers".

https://en.m.wikipedia.org/wiki/Criticism_of_Netflix

question000• 5 years ago

Yes PNC Bank also does this, I bet they have hacks that they don't want to disclose and just want to smooth over the problem.

bredren• 5 years ago

Sounds like the FTC has drawn a hard line on dark patterns. Hopefully, they wake up to other deceitful, anti-consumer design patterns.

Leary• 5 years ago

I signed up for Moviepass the month they came out.

Canceled the month they started to have blackouts.

Great deal, would do again if any VC wants to try again for the goodness of the movie industry.

oplav• 5 years ago

I had a similar experience. Got to see lots of movies in a small, comfortable (and expensive) NYC theater while always pre-picking my seats.

jedberg3• 5 years ago

AMC has a similar program. It's not as good, but if you like movies and have the time, it's still a good deal.

Gunax• 5 years ago

I believe the first blackout was during the release of 'It'.

Of course they never called it a blackout... they just always seemed to experience technical issues... and always on Friday or Saturday... on always on a Friday or Saturday when a popular movie was being released. What a coincidence!

bdefore• 5 years ago

I owe a debt of gratitude to MoviePass. Their shenanigans led me to learn about virtual credit cards (privacy.com in my case). I'll never be surprise billed by a subscription service again.

Cu3PO422• 5 years ago

Unfortunately, privacy.com is only available in the US. I had been looking for an alternative for quite some time, but recently I stumbled onto the fact that Wise (formerly TrasferWise) will give you a seemingly unlimited amount of virtual cards if you open an account with them.

As far as I can tell this isn't documented on their website, but I can definitely get new cards on demand and disable them as necessary. In fact, their website still mostly references MasterCard, however I have received a physical Visa card and the virtual cards are all Visa as well.

This isn't as sophisticated an offering as privacy.com because you can't set a fixed limit per card, but it's a lot better than nothing.

ozym4nd145• 5 years ago

I believe Wise has a limit of upto 3 virtual cards. Are you able create more? source: https://www.kasareviews.com/wise-debit-card-review-pros-cons

arbitrage2• 5 years ago

you will once a big enough fish captures/compromises privacy.com.

arbitrage2• 5 years ago

okay, but like ... don't we sign away any right to care in the T&C/EULA of services? or like when you go to a baseball game, this ticket can be revoked at any time for any or no reason.

like, it's their company and service, they can do what they want with their data. why is the FTC getting involved here?

DrBenCarson• 5 years ago

I thought I was just terrible with using my password manager….

This happened to me at least a couple times back in 2016 when I was seeing 2+ movies with MoviePass. I would get to the movie theater and all of a sudden be locked out. I would need to reset my password standing on the curb waiting to get a damn email over 500kbps LTE.

Good to know it wasn’t my fault and that the public in general is now aware of this behavior.

dwighttk• 5 years ago

Weird. I was using MoviePass right at the end and they didn’t need to change my password, they just limited what movie and time I could use my card so much it stopped being worth the trouble.

I guess they could have changed my password to keep me from canceling…

MoviePass settles FTC allegations that they limited usage, exposed user data

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