Corrected on 2/8/08: An earlier version of this article incorrectly spelled the name of Imax co-CEO Brad Wechsler.
What's better than watching a monster flick on the big screen? Catching it on an eight-story-high Imax movie screen with booming surround sound that magnifies every roar (and whimper). Nowadays, Imax's towering screens are also a conduit for 3-D concert footage that takes you behind the microphone with Bono, eye to eye with U2's guitarist The Edge, and floating above a sea of euphoric fans.
Once upon a time, the Ontario-based company was known exclusively for science and nature documentaries like Everest and The Living Sea, which play primarily at museums and theme parks. Today, Imax is also in the business of screening concerts, 3-D animation, and Hollywood blockbusters such as I Am Legend or the latest Harry Potter flick. The company is breaking out of museums as well: Soon, you're likely to see one of its supersize screens pop up at a nearby multiplex.
Imax's towering images and stunning sound quality have always been an easy sell for audiences. But the enormous cost of producing that experience has long limited the company's growth. Now it's possible to convert a standard Hollywood film into the big-screen format, but just a few years ago, only Imax's Volkswagen-size cameras could produce an Imax film. In July, the company will take another leap and move from a film-based system to a digital format. Movies that were previously delivered in unwieldy, 600-pound film canisters (requiring a special forklift) will now arrive on a hard drive. Eliminating film prints will save studios from producing such massive reels, which can cost them $2 million or more per movie release. As a result, Imax expects to increase the flow of Hollywood-movie screenings to between 10 and 12 each year, up from just six or seven.
New deal. The company is also changing the way it does business. Under the old model, theater owners had to fork over $1.4 million to outfit an Imax theater and then give up a small percentage of box-office receipts each year. Joint ventures are the new standard: Now, owners pay $150,000 to $175,000 to "retrofit" an existing theater by moving walls or shifting seats, and Imax covers the equipment, which costs $500,000 per theater. The two companies share box-office revenues, and Imax gets a cut from the studios. "Before, a lot of exhibitors were turned off by Imax's high upfront costs, but now they can get in for less money and share more back-end profits," says Eric Wold, an analyst with Merriman Curhan Ford.
The new model requires a hefty initial investment from Imax, but that's outweighed by recurring revenues down the line, says Henry Mehlman, comanager of the John Hancock Small Cap Equity fund, which invests in the company. "Think of it as forgoing early profits for long-term profit," Mehlman says. "Rather than just selling something, they'll be generating profits on a long-term basis and participating in revenues for many, many years." A steady stream of profits could help boost Imax's ailing stock. The shares, which fell to nearly $3 in 2006 after news broke of a failed attempt to sell the company and a Securities and Exchange Commission inquiry into Imax's accounting, have traded between $4 and $7 over the past year.
In December, the company inked a deal with AMC that will put 100 Imax theaters in 33 major U.S. markets over the next few years. To put that into perspective, Imax currently has 300 theaters total worldwide, and this deal will double its presence in the U.S. commercial multiplex business. A modest rollout of the new theaters will begin in July, with the rest opening in 2009 and 2010.
As part of the deal, Imax guarantees the AMC theaters "territorial exclusivity," meaning rival theaters can't build another Imax close by. "Think about it: If you can be the only Imax in a region showing Batman, or the only one showing a movie in 3-D, you're going to draw more traffic and gain market share in your area," Wold says. Brad Wechsler, co-CEO, says Imax doesn't want to become ubiquitous: "Seeing a film at the Imax should be like flying first class." AMC isn't the only game in town for Imax. The company is expanding its footprint through smaller deals with theater chains including Regal, Cinemark, Muvico, and Carmike. Revenue from the box office is growing at a sharp clip: In 2007, Imax pulled in $145 million in Hollywood-movie sales, a 56 percent jump over revenues of $93 million in 2006.