Imax Case Study Imax\'s General

IMAX Case Study

IMAX's General and Industry Environments

IMAX's Business Strategy and Their Resources, Capabilities and Competencies that Support Their Business and Corporate Strategies

Can IMAX Survive as a Niche Player?

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IMAX Larger than Life: Case Study

In 1967, filmakers Graeme Ferguson, Robert Kerr and Roman Kroitor were inspired by the success of a multi-screen theater system they had seen at the Montreal Expo. The three filmakers founded IMAX and became the only company to be involved in all phases of creating large format films. Three years later, in 1970, IMAX's first film premiered at the Fuji Pavilion in Osaka, Japan. In 1994, Richard Gelfond and Bradley Wechsler purchased IMAX for $80 million and took the company public, achieving a market capitalization of $196 million in their first year. By 2008, there were 295 theaters showing IMAX films, in 40 countries. Sixty percent of these theaters were in North America. Fifty percent of the theaters were located in aquariums, museums, zoos, and other institutions. Approximately 50% of the theaters were equipped with IMAX 3D technology. However, by December 12th, 2008, market capitalization had fallen to $125 million ("IMAX: Larger," n.d.).

In some instances, IMAX had reached great success, such as the release of films like Nascar and the Polar Express. Other films were not so successful. The roller coaster ride of success and failure has led to serious questions IMAX must face. Can the company thrive as a niche player in the large format movie industry? Could releasing more Hollywood movies in IMAX format be a blessing or a curse for the company? Should these movies be released simultaneously in both the large IMAX format and regular theater format? Have the strategical changes IMAX has made been effective? To answer these questions, an analysis of IMAX's general and industry environments is conducted, including identifying the opportunities and challenges the company faces. IMAX's business strategy is discussed, along with an analysis of IMAX's resources, capabilities and competencies that supports their strategies.

IMAX's General and Industry Environments:

To answer the important questions facing IMAX, an analysis of the company's general and industry environments must be conducted to better understand the situation at hand. Using Porter's Five Forces, this analysis begins with analyzing the rivalry among competitors and followed by the threat of substitutes. The bargaining power of channels and end users must also be taken into consideration, as well as the bargaining power of suppliers and the barriers to entry for new competitors.

The rivalry among competitors in the movie industry is fierce. In the early 1990s, IMAX partnered with leading theater chains including: AMC, Cinemark and Regal. However, although these partners had went on an IMAX building spree, by the late 1990s, when many theater-owners filed bankruptcy, IMAX suffered with hundreds of millions of dollars of risky debt being a serious problem for the organization. Despite buying back $90 million of its debt, laying off of 200 employees and $14 million in budgetary cutbacks the company was still in dire financial straights (See Exhibits 1, 2 & 3) ("IMAX: Larger," n.d.). Although there are no direct competitors, offering involvement in all aspects of large format films, traditional movie screens are still IMAX's main competitors, even in theaters where they have their unique system installed .

The bargaining power of channels and end users is also significant. The company generated nearly 83% of its total revenue from IMAX system sales and films, while just over 14% was garnered from theater operations. Partners, such as Regal, in distributing their unique films have significant power by not only deciding what movies are shown but also by setting ticket prices, which are often set higher than regular-sized movies when simultaneously released, and other factors that can affect the company's success. These channels also have power over their own expansion and the percentage of expansion that will incorporate IMAX technology. End users too have significant bargaining power. Although there are exclusively IMAX films, the prevalence of other movie outlets -- traditional theaters, DVDs, cable, and movies on demand via the Internet, means that there are a variety of other movie viewing options consumers can enjoy, often much less expensively.

The bargaining power of suppliers is less of an environmental factor for IMAX. As the company is a full-service large format filmmaker, their suppliers are limited. Hard materials such as the specially made large format film could be significant, as it's not a common item. A planned technological conversion to digital format will reduce the bargaining power of suppliers even further, while also reducing the company's cost of operations.

The barriers to entry for new competitors are an environmental factor in IMAX's favor. To compete directly with IMAX, in the large format film industry, at all levels, a new competitor would need significant capital. Currently, large theater chains are not in a position to go into direct competition, which is the reason why companies like Regal are continuing to partner with IMAX.

The opportunities and challenges affecting IMAX are as varied as their movies. IMAX has already seen a sneak peek of the potential in releasing Hollywood movies in IMAX format. The success of the Polar Express is just the tip of the iceberg. Remastering already released films, such as IMAX did with Apollo 13 and the Matrix Revolutions, is another opportunity the company should be further exploring. Classic movies like the Wizard of OZ could be financial blockbusters for the company. Post release IMAX conversions, like the Matrix Reloaded, earned the company $11.7 million, while Beauty & the Beast saw $32 million in revenue. Polar Express earned the company $45 million in revenue, with its simultaneous release. Remastering of an existing film typically only takes 13 to 16 weeks, much less time than shooting and editing an entire film from scratch ("IMAX: Larger," n.d.). Of course, the primary threat is the concern that these Hollywood movies may dilute the IMAX brand.

IMAX films originally were most often documentaries -- unique pieces of artistic films created to specifically take advantage of the large format film's ability to immerse the movie goer in the film experience. Films like Everest and Nascar are part of what makes IMAX so unique. IMAX is not just about watching normal Hollywood films on a bigger screen, but instead an entire event unlike normal movies. Although converting Hollywood movies to IMAX format may increase revenues, in the short-term, long-term it could damage the IMAX unique brand. Funding for the true IMAX full-immersion films could dry up as the trend goes towards the easier conversion of pre-made movies.

As mentioned, 50% of IMAX theaters were located in institutions such as museums and zoos ("IMAX: Larger," n.d.). There is a significant opportunity in expanding IMAX's presence outside of these institutions. New partnerships with theater chains, like the current partnership with Regal, will allow IMAX to expand into other more traditional theater areas. However, much of IMAX's success is due to the placement of their theaters in these institutions.

IMAX has a unique brand image that they've built through not only their award-winning documentaries but also, in part, due to their location in prestigious, institutional venues like the Smithsonian Institution and the Museum of Science and Industry in Chicago. This brand has been of great benefit to the company over the years. As an example, the company does not have to pay for the big name, multi-million dollar stars that Hollywood uses when they make a movie. In fact, even their 3D films, at a total of $10 million to produce, is much less than what Hollywood often pays for just one of the bigger stars ("IMAX: Larger," n.d.). If IMAX is truly going to compete with Hollywood their production costs could skyrocket if they seek to use the similar crowd-drawing Hollywood star talent. In addition, as in the 1990s, there is a concern with expanding to quickly, especially given the shaky economic conditions in North America, IMAX's primary presence, as well as the theater industry in general.

Only 10% of films, historically, recover their investment from domestic theater release. In addition, only 60% of movies ever recover their original investment ("IMAX: Larger," n.d.). To help maximize revenues, theaters carefully selected release dates around holidays and in order to minimize competition with other movies of the same genre. This hyper-competitive industry, coupled with a historic record of 40% of movies losing money, is a threat and can result in IMAX repeating their past of the 1990s, should they over expand.

IMAX's Business Strategy and Their Resources, Capabilities and Competencies that Support Their Business and Corporate Strategies:

IMAX's current business strategy is one that looks to offset the current threats the company faces, with a difficult industry, and their own weakness of being primarily present through institutions, as opposed to more traditional movie venues which may attract more revenue. They have begun to expand outside of their traditional institutional setting, especially with their partnership with Regal theaters and their contract to expand IMAX to 52 theaters by 2010 ("IMAX: Larger," n.d.). This de-institutionalization of the company will help bring the IMAX experience to new movie goers. To further broaden their appeal, IMAX has diversified their movies as well.

IMAX's second part of their business strategy centers on bringing more Hollywood movies to their large format screens. Whether it be remastering previously released films or simultaneously new films, IMAX has worked hard to expand their audience from those who typically enjoyed the unique IMAX documentary films that started the company. Costs of conversions of existing films has reduced significantly, at $22,5000 to convert a standard two-dimensional film and $45,000 to convert a 3-D film ("IMAX: Larger," n.d.). These 3-D films are also a part of the company's current business strategy.

Technological development to improve movie goers' experience as well as differentiate their product from other traditional theaters is a primary focus of IMAX's business strategy. The company has committed both financial and human resources to this strategy. In 2007, the company spent nearly 5% of their revenues on Research and Development. Nearly 1/6th of their employees were assigned to Research and Development tasks. Over the past 3 years, IMAX has spent approximately $12.6 million on Research and Development, resulting in 46 patents, with 7 more pending ("IMAX: Larger," n.d.). The result of this R&D focus has been several technological advancements.

IMAX has created a unique 3D camera and projection system. Realistic 3D images are created as the audience wears "polarized or electronic glasses that split the images for the left and right eye by using liquid crystal shutter lenses that were controlled by an infrared signal and opened and shut 48 times per second in coordination with the projector to create a 3D effect" ("IMAX: Larger," n.d., p. 3-4). IMAX also developed a revolutionary, lightweight 3D camera that was used to shoot footage on the International Space Station. This new 3D technology is complemented by the 12,000 watts of realistic, distortion-free sound that features 3D directional sound technology, giving the sound actual depth and location. Going digital was another breakthrough thanks to IMAX's strategy of intense Research and development.

In the beginning, IMAX film was 10 times larger than traditional 35mm film. Each frame of IMAX film had 15 sprocket holes, to guide it as opposed to only 4 found in each frame of 35mm film ("IMAX: Larger," n.d.). Because of the film's larger size, it was much more costly to print and distribute when compared to regular film. With their development of digital camera and projectors that are planned for installation in 2008, IMAX will be able to produce and distribute their films at a much lower cost making them more competitive with traditional films.

Conclusion: Can IMAX Survive as a Niche Player?

Treading into Hollywood territory has both its advantages and disadvantages for IMAX. The question then remains -- Can IMAX survive as a niche player or do they have to expand their product line in order to survive? IMAX's previous success has been based on their unique form of film entertainment. No other movie theater offers the full immersion into the film that IMAX does. From the 8-stories high and 120-feet wide screen to the 12,000 watts of distortion-free, 3D sound, an IMAX film is beyond simply going to the movies. The company traditionally has taken this technology and produced award-winning, documentary style films that can showcase their innovative technology. In some instances, such as Nascar, the films have been well received and have been financially successful. However, in other instances there have been films that were poorly attended and, despite the lower production costs of IMAX films in comparison to many Hollywood films, have not been financially successful.

The company's primary location choice has been within institutions including: museums, aquariums, and the like. This too has had its advantages and disadvantages. The location choice has set IMAX apart from other traditional, regular movie theaters. The prestige of the locations has reflected well on IMAX, as a whole, helping build its brand. However, these more obscure location choices has meant that mainstream movie goers are less likely to be exposed to IMAX films. Although this niche has helped build the IMAX company and brand, only by expanding their product line can IMAX hope to be financially successful, in today's hypercompetitve marketplace.

The market reality IMAX operates in is much different than when the company was founded nearly four decades ago. In the 1970s, movie theaters were the primary place consumers could go to see movies. Today, moviegoers have a multitude of choices to fulfill their movie going needs. These include a greater selection of traditional movie theaters, including discount, second run theaters, DVD rentals from local stores or through online services, DVD purchases easily found in a variety of stores, and the Internet via movies on demand or the multitude of independently produced films, not to mention the scores of movie channels available on cable and satellite TV as well as the made-for-TV movies that are continuously being released. Today's audience is different from the movie audience that was prevalent forty years ago.

Today's moviegoers not only have greater access to a wider selection of films, but also to media in general. From hundreds of channels on television, to instant access to almost any topic imaginable on the Internet, today's moviegoers are bombarded with information. This has made them a more knowledgeable and a more discerning movie audience. Couple this with a challenging economic environment and consumers becoming more choosy about their discretionary spending, and it becomes clear that this is not the same environment IMAX operated within when it was originally founded. This increased competition and changing consumer means IMAX must change with the times.

An organization can offer the most innovative, highest quality product imaginable; however, if there are not enough consumers who value this product the organization will fail. IMAX needs to understand the current movie industry as a whole to re-situate itself in its own little niche. Redeveloping its own niche will mean IMAX will have to evolve to meet these new challenges, but still keep some of the strengths that have made it so successful in the past.

Although there is a concern that increasing the number of Hollywood films released in IMAX format will dilute the brand, if done correctly this concern will be a non-issue. Certainly taking every major film released and converting into the large format would lose the unique identity that IMAX has worked so hard to create. If the company were to pursue this strategy they would simply become a large-formatted Regal Theater, or whichever other movie theater chain they chose to partner with. However, it has become clear that simply making their more traditional documentaries is a riskier financial path. Instead the company has to walk a fine line between the two to develop its new niche.

By selectively converting Hollywood films, IMAX will be able to attract new consumers to the IMAX experience. These mainstream films should be chosen for their ability to best take advantage of the IMAX large format and experience immersion, just as the documentaries are chosen to be produced. Also, IMAX needs to choose Hollywood films that are expected to be more successful than average -- blockbusters. In selectively choosing which Hollywood films to convert to IMAX format, IMAX will not simply become one more traditional theater that just happens to be on a larger screen.