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AP Business Case Study · Unit 3, Task 8

MoviePass: Selling Movie Tickets for Less Than They Cost

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Unit 3 · The Cash Flow Statement

A real-company case study for Unit 3, Task 8 of AP Business with Personal Finance, written in the same format as the course's business cases. Read the case, answer each question on your own, then open the sample answers to check your thinking. Facts are current as of October 2026, and every source is listed at the bottom.

The Case

Unit & taskUnit 3, Task 8: The Cash Flow Statement
Topic3.8
Key peopleMitch Lowe (CEO of MoviePass (from 2016)); Ted Farnsworth (Chairman and CEO of Helios and Matheson Analytics, MoviePass’s parent company); Stacy Spikes (Co-founder; pushed out in 2017–2018, later pursued MoviePass’s assets after the bankruptcy and led its 2022 relaunch)
Case years2011–2026 · Evaluation case
Key questionHow did MoviePass’s cash flow statement show that its fast-growing subscription business could not survive without a constant stream of outside financing?
Business Canvas componentsFinance, Customer
Snapshot
  • Business: MoviePass (movie-theater subscription service)
  • Industry: Entertainment / movie ticketing
  • Founded: 2011, by Stacy Spikes and Hamet Watt
  • Parent, 2017–2020: Helios and Matheson Analytics (publicly traded; bankrupt in 2020)
  • Key people: Mitch Lowe, Ted Farnsworth, Stacy Spikes
  • Status (2026): Relaunched in 2022; selling subscriptions again in 2026

A Movie a Day for $9.95

Stacy Spikes and Hamet Watt launched MoviePass in 2011 with a simple pitch: instead of buying movie tickets one at a time, pay one monthly fee and go to the theater more often. In the early years, a subscription cost about $40 a month, and growth was slow. When Mitch Lowe took over as CEO in 2016, MoviePass had only about 20,000 subscribers.

That changed in August 2017. Helios and Matheson Analytics, a publicly traded data-analytics company led by chairman and CEO Theodore “Ted” Farnsworth, agreed to buy a majority of MoviePass. On August 15, 2017, MoviePass announced a new price: $9.95 a month to see up to one movie in a theater every day. The deal closed on December 11, 2017, and by April 2018 Helios and Matheson owned about 92% of MoviePass. Co-founder Spikes lost his board seat in December 2017, and in January 2018 he was told the company no longer needed him.

The Math Behind the Ticket

Here is how the plan worked. Members paid at the theater with a MoviePass debit card, and MoviePass usually covered the full ticket price. A member’s fee stayed at $9.95 no matter how many movies he or she saw, so every extra trip to the theater meant more money flowing out of MoviePass. Helios and Matheson’s own annual report for 2017 stated that MoviePass was spending more to keep each subscriber than it collected from that subscriber, and it warned that heavier movie watching would mean bigger losses per subscriber and negative cash flow.

Customers loved the deal. MoviePass passed 2 million paying subscribers in February 2018 and, according to Lowe, had nearly 3 million by that summer. But the faster the service grew, the faster cash left the business. In the same annual report, the company’s independent auditor included a warning that there was substantial doubt about whether Helios and Matheson could continue as a going concern—in other words, whether it could keep operating.

Running Low on Cash

In May 2018, Helios and Matheson filed a report with the U.S. Securities and Exchange Commission (SEC) that put numbers on the problem. From September 2017 through April 2018, it said, its cash deficit had averaged about $21.7 million per month. At the end of April, it had about $15.5 million in available cash, plus about $27.9 million being held by the companies that processed its card payments. To keep going, it said, it would need money from selling more shares of its stock, starting that month.

Exhibit 1 shows what happened next. In the first nine months of 2018, the company’s operating activities used about $322.7 million in cash. Most of the money to cover that gap came from financing activities, including $244.0 million raised by selling stock. Even so, the cash balance fell from about $24.9 million at the start of the year to about $4.9 million on September 30. Over the same nine months, the company reported revenue of about $198 million and a cost of revenue of about $424 million—more than twice its revenue.

On July 26, 2018, MoviePass’s service was interrupted. The next day, Helios and Matheson borrowed $5 million in cash through a demand note (a loan the lender can call in at any time) so it could pay the companies that processed its payments. In August 2018, MoviePass cut its standard plan from one movie a day to three movies a month, and Helios and Matheson’s stock was trading for just a few cents a share.

The Final Credits

On September 13, 2019, the company told subscribers that MoviePass would stop working the next day. Helios and Matheson said it was still looking for financing and could not predict whether the service would return. In 2020, Helios and Matheson filed for Chapter 7 bankruptcy.

Federal prosecutors later accused the two top executives of misleading investors. In November 2022, the U.S. Department of Justice charged Farnsworth and Lowe with securities fraud and wire fraud, alleging that they falsely described the $9.95 plan as tested and sustainable when they knew it was a short-term marketing tactic meant to attract subscribers and investors. An indictment is only an accusation, but both men later pleaded guilty: Lowe in September 2024 to conspiracy to commit securities fraud, and Farnsworth in January 2025 to securities fraud and conspiracy to commit securities fraud. As of the Justice Department’s July 2026 case update, neither had been sentenced.

A Sequel

Spikes, meanwhile, returned to the company he had started. In late 2021, he learned that no one had bought MoviePass’s assets at the bankruptcy auction; according to TIME, he talked the bankruptcy trustee down from a $250,000 minimum bid to $140,000. In February 2022, he announced a relaunch built on tiered monthly plans and credits instead of unlimited movies. By 2026, MoviePass was selling subscriptions again; in May 2026, it announced a partnership with the Independent Cinema Alliance, a nonprofit trade group for independent theater owners, along with a three-month summer pass starting at $30.

Exhibit 1: Helios and Matheson Analytics (MoviePass’s parent): cash flow summary, nine months ended September 30, 2018
Line itemAmount (as filed)Rounded
Cash at beginning of period (January 1, 2018)$24,949,393about $24.9 million
Net cash used in operating activities−$322,692,755about −$322.7 million
Net cash used in investing activities−$53,491about −$0.05 million
Net cash provided by financing activities$302,701,244about $302.7 million
Included in financing: proceeds from selling stock (net of fees)$244,013,817about $244.0 million
Net change in cash−$20,045,002about −$20.0 million
Effect of foreign currency exchange rates on cash−$52,419about −$0.05 million
Cash at end of period (September 30, 2018)$4,851,972about $4.9 million

Source: Helios and Matheson Analytics Inc., amended quarterly report (Form 10-Q/A) for the period ended September 30, 2018, condensed consolidated statement of cash flows, as restated in 2019. Figures cover the whole parent company, including MoviePass.

Reading Questions

These are the same for every case. They check that you caught the basics before you analyze.

1. Which business does this case feature, and what product or service does it provide?
The case features MoviePass, a movie-theater subscription service, and its parent company from 2017 to 2020, Helios and Matheson Analytics. Starting in August 2017, MoviePass charged members $9.95 a month to see up to one movie a day in theaters. Members paid with a MoviePass debit card, and MoviePass usually paid the theater the full price of each ticket.
2. Who are the key people named in the case, and what roles do they play? Which other stakeholders — individuals or groups — have an interest in the business?
Stacy Spikes and Hamet Watt co-founded MoviePass in 2011; Spikes was pushed out after the 2017 deal and later led the company’s relaunch after the bankruptcy. Mitch Lowe was MoviePass’s CEO starting in 2016, and Ted Farnsworth was chairman and CEO of Helios and Matheson; both later pleaded guilty to federal charges involving securities fraud. Other stakeholders include subscribers, movie theaters that were paid for tickets, investors who bought Helios and Matheson stock, the payment processors that handled MoviePass’s card transactions, the lender behind the $5 million note, the company’s auditor, the SEC and the Justice Department, and the Independent Cinema Alliance, a trade group of independent theater owners that partnered with MoviePass in 2026.
3. Identify an opportunity and/or a challenge the business faces in this case.
Opportunity: there was huge demand for cheaper moviegoing—MoviePass grew from about 20,000 subscribers in 2016 to nearly 3 million by summer 2018. Challenge: because MoviePass paid theaters full price while each member’s fee stayed at $9.95, more usage meant more cash going out. Operating activities used about $322.7 million in cash in the first nine months of 2018, so the company depended on selling stock to pay its bills and briefly ran out of money in July 2018.

Practice Questions

These apply the Unit 3 concepts from Task 8 to the case, in the style of AP free-response prompts.

1. Identify the three sections of a cash flow statement. Then, using Exhibit 1, describe what each section shows about Helios and Matheson’s cash during the first nine months of 2018.Topic 3.8 · LO 3.8.A
A cash flow statement has three sections: operating activities, investing activities, and financing activities. The operating section shows net cash used of about $322.7 million, meaning the cash paid out to run the service—including paying theaters for members’ tickets—was far larger than the cash collected from subscribers. The investing section shows only about $53,000 of net outflow, so the cash drain did not come from buying long-term assets such as equipment or property. The financing section shows a net inflow of about $302.7 million, including $244.0 million from selling stock, which means outside investors were paying for the company’s day-to-day operations. Even with that financing, the net change in cash was about −$20.0 million, and the cash balance fell from about $24.9 million to about $4.9 million.
2. Using Exhibit 1, calculate (a) the net change in cash from the three sections and (b) proceeds from selling stock as a percentage of net cash provided by financing activities. Explain what these results suggest about how the company was paying its bills.Topic 3.8 · LO 3.8.A
(a) Net change in cash = operating + investing + financing = −$322,692,755 + (−$53,491) + $302,701,244 = −$20,045,002, or about −$20.0 million. (Check: $24,949,393 − $20,045,002 − $52,419 exchange-rate effect = $4,851,972 ending cash.) (b) $244,013,817 ÷ $302,701,244 × 100 ≈ 80.6%, so stock-sale proceeds equaled about four-fifths of the net cash provided by financing activities. These results show that the core business was not producing cash; it was using it up. Money from investors buying new shares was the biggest source of the financing that kept the company going, and even total financing did not fully cover operating outflows, so cash kept shrinking. A business that depends on outside financing to cover its operating cash outflows can run out of cash as soon as investors stop buying, which is what nearly happened during the July 2018 service interruption.
3. Explain how one stakeholder could have used Helios and Matheson’s cash flow information in 2018 to make a decision. Use evidence from the case.Topic 3.8 · LO 3.8.B
An investor deciding whether to buy Helios and Matheson stock could use the cash flow statement to judge the company’s stability. The statement showed operating activities using about $322.7 million in nine months while most incoming cash came from financing, including $244.0 million from stock sales. Because the operating section was so negative, the investor could reason that the company would have to keep selling new shares to survive; each new sale spreads ownership across more shares, and if buyers dry up, the company runs out of cash. Combined with the auditor’s going-concern warning and the May 2018 report of a cash deficit averaging about $21.7 million a month, this evidence would lead a careful investor to avoid the stock or demand a much higher potential return—and by August 2018 the shares traded for just a few cents. A payment processor could use the same information to decide whether to keep handling MoviePass’s transactions, since the company had to borrow $5 million in July 2018 just to pay its processors.

Discussion Questions

Talk these through with a partner or your class. There's more than one good answer, so back yours up with evidence from the case.

  1. In 2018, a MoviePass member who saw several movies a month got a great deal. Trace the cash: who was actually paying for those extra tickets?
  2. Helios and Matheson’s revenue grew quickly in 2018. Why might a lender or investor care more about the operating section of the cash flow statement than about the revenue line?
  3. Which stakeholder had the most reason to worry in May 2018: shareholders, movie theaters, payment processors, or subscribers? Defend your choice with evidence from the case.
  4. Selling stock kept MoviePass running for months. When is it reasonable for a company to use financing to cover negative operating cash flow, and when is it a warning sign?
  5. The relaunched MoviePass sells tiered plans with credits instead of unlimited movies. How would that change the company’s operating cash flow risk?

Application Activity

Choose a subscription business you know (a gym, meal kit, streaming service, or car wash plan). List four cash inflows and four cash outflows it likely has, and sort each into operating, investing, or financing activities. Then describe what would happen to its operating cash flow if its heaviest users doubled their usage, and recommend one change to the plan that would protect its cash.

Key Takeaways

  • The operating section of a cash flow statement shows whether a company’s core business brings in more cash than it uses. MoviePass’s operating activities used about $322.7 million in nine months because it paid theaters full price while each member paid a flat $9.95.
  • Financing inflows can hide an operating problem for a while. Helios and Matheson raised $244.0 million by selling stock in nine months, but it still ran short of cash in July 2018, borrowed $5 million to pay its processors, and eventually shut the service down.
  • Different stakeholders read cash flow for different reasons: auditors judge whether a company can keep operating, investors judge stability, and suppliers and processors judge whether they will be paid. Fast-growing revenue does not guarantee a business can pay its bills.

Use it in your Business Canvas Project

When you build the financial strategy for your Business Canvas business, check that your price covers the cost of serving your heaviest customers, not just your average ones. Then explain how you would cover a period of negative operating cash flow without depending entirely on new investors.

For Teachers

Opening activity: Ask students: Would you pay $10 a month to see a movie in a theater every day? Have them estimate a local ticket price and figure out how many movies a member could watch before the company paid out more than it collected. Then ask whether a business can grow quickly and still run out of cash, and record their predictions to revisit after reading.

Tip: “Print case” prints the case and all questions with the sample answers hidden, so it works as a student handout.

Sources

  1. Helios and Matheson Analytics Inc., Form 10-K annual report for fiscal year 2017, U.S. Securities and Exchange Commission (EDGAR), 2018-04
  2. Helios and Matheson Analytics Inc., Form 8-K current report (dated May 8, 2018), U.S. Securities and Exchange Commission (EDGAR), 2018-05-08
  3. Helios and Matheson Analytics Inc., Form 8-K current report (dated July 27, 2018), U.S. Securities and Exchange Commission (EDGAR), 2018-07-27
  4. Helios and Matheson Analytics Inc., Form 10-Q/A amended quarterly report for the period ended September 30, 2018 (restated), U.S. Securities and Exchange Commission (EDGAR), 2019-03
  5. MoviePass parent lost $100 million in the second quarter, CNBC, 2018-08-15
  6. MoviePass Has Officially Shut Down, And We Don’t Know If There Will Be A Sequel, NPR (published via WNYC), 2019-09-15
  7. Former CEOs of MoviePass and Parent Company Charged in Securities Fraud Scheme, U.S. Department of Justice, Office of Public Affairs, 2022-11-04
  8. United States v. Theodore Farnsworth and J. Mitchell Lowe (case page, last updated July 22, 2026), U.S. Department of Justice, Criminal Division, 2026-07-22
  9. MoviePass Co-Founder Stacy Spikes Is Trying to Stage a Comeback, TIME, 2022-04-27
  10. MoviePass and the Independent Cinema Alliance Launch Strategic Collaboration to Create Exclusive Subscription Network for Member Theaters, GlobeNewswire (MoviePass press release), 2026-05-27
All Case Studies Review Unit 3 Practice Questions

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