Imax (Imax) has been under strong pressure to grow as its stock price has plummeted after not being able to find a buyer last year.
In response they've come up with the idea of going beyond their traditional base of museums and science centers and other such educational facilities and looking at commercial theaters as a potential growth area.
The usual way of doing business has been to lease its big-screen technology to theaters charging an upfront fee of approximately $1.5 million. In return the theater gets to retain the vast majority of the revenue.
Under their new strategy they will enter into joint ventures where Imax will pay for the equipment costs, which comes to around $700,000. The theaters in turn would have to spend close to $250,000 to change the auditorium around. After paying for their expenses, each party will then share a percentage of the revenue negotiated between them.
Richard Gelfond, co-chief executive officer said in reference to the upcoming movie releases that "When people believe there are very strong films coming, it's kind of an incentive to sign with Imax, and install quickly so they can be open in time for the next film. This is an opportunity to grow faster. I would be surprised if we didn't announce our first joint venture in the first quarter."
While this is a good move in my estimation for the company, I think it's going to be a hard sell at this time. There has been a lot of investment in theaters recently in upgrading to stadium seating and adding higher quality sound systems.
Still there will be some that grab this carrot of Imax bearing the brunt of the expenses and the additional attraction of big-screen technology itself.
While theater owners should have a good year with the movies coming out, Imax is still the one in the weaker, somewhat desperate situation, no matter which way you spin it. Still, it could be a good long-term joint-venture that would add benefit both parties.
With the limited number of joint ventures being proposed: 20 theaters this year; 30 in 2008; 40 in 2009; and 50 in 2010, this could be the type of differentiator for theaters that could give them a competitive edge for years to come if it's embraced by movie-going fans.
The geographic parameters of the deal are cinemas in North America, Western Europe and Japan.
Imax is in a tough spot. They are trying to sell a luxury product to a stagnate industry. The future of the industry is the digital projector, but there is too much uncertainty over who gets to pay for it. Once they figure that out, growth will return to the theaters.
Posted by: davis freeberg | January 26, 2007 10:04 PM | Permalink to Comment