I love IMAX. Seeing Christopher Nolan's The Dark Knight on IMAX (twice) was easily the most amazing movie experience I've ever had. I can still remember almost getting queasy, feeling like I was really there looking down from a skyscraper in Hong Kong. The crisp, gorgeous picture on the gigantic screen is a game-changer. I believe it is the future of films. Yet, as a company, IMAX has not managed to be profitable for some time. Fox Business interviewed its CEO, Rich Gelfond yesterday, and he explained that's about to change. I believe him.
Gelfond is one of the few CEOs openly touting his firm even in the face of a wicked recession. A CEO saying that this year will be better than last year should impress anyone in this economic climate, but he goes further. After three years of quarterly losses, he proclaims that this year IMAX will achieve profitability. He attributes this to growth and lower costs.
First, here's the Fox Business clip, if you'd like to watch:
Domestic growth in IMAX theaters is staggering. Over the past several years, Gelfond says that his company averaged around 20 new IMAX system installations per year. Now, it is opening two to three new theaters per week.
Yet, IMAX movie tickets tend to be 30% to 40% higher than regular movie tickets. Is there really demand for a premium experience, especially in a recession like this? After all, their growth would be in vain if domestic demand did not warrant more IMAX theaters.
It does. Gelfond says that, while 2% of the new Star Trek movie's screens were IMAX format, IMAX revenues accounted for 20% of its North American box office business. Moreover, all 160 midnight shows of Transformers on Wednesday night were sold out.
But their growth isn't just domestic. IMAX has a focused expansion into key foreign markets, including China and Japan. According to Gelfond:
China is our 2nd largest market in the world. We're scheduled to have 43 theaters open by the end of 2012, which makes us the largest foreign exhibition presence in China. But one of the obstacles we have is how do you get all those Hollywood films into China, given the restrictions on China film, and also given the appetite of audiences. So in addition to doing films like Harry Potter, Transformers and Batman, we entered an agreement with one of the largest studios there, Huayi Brothers, where we're gonna take Chinese films and turn those into IMAX.
This seems like a brilliant strategy to me. Everybody understands the huge potential of the Chinese market. Rather than fight the uphill battle of getting the Chinese to run U.S. movies on their screens, IMAX is just converting theirs instead.
As for Japan, Gelfond tells us:
In Japan, we actually opened our first commercial theater in the country last week. And for this weekend it was the #1 theater in the entire country. Japan is the 2nd largest film market in the world, and we think that the fact that we are starting to crack that market creates a good opportunity for us.
I do too. And if you trust early indicators, the Japanese market demand seems solid.
Gelfond explains that IMAX's conversion to digital was extremely expensive. But his company can now reap the rewards: its vendors face a much lower cost for digital films. How much lower?
You used to have to pay for prints, which cost $25,000 for 2-D or $45,000 for 3-D. Now it's $400.
Even if you use the lower 2-D figure, that's a decrease in cost of 98.4% per theater. Gelfond also noted that IMAX pays for films to be converted to their format. With growth in theaters and a huge decrease in cost per theater, big studio movies -- especially big action movies -- should increasingly embrace the IMAX format.
I know I have. I can hardly wait to see Transformers on IMAX Saturday night.
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