IMAX Larger Than Life: Strategy, Brand & Survival Analysis

Introduction: IMAX's Origins and Strategic Context

In 1967, filmmakers 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 filmmakers 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, and 50% were located in aquariums, museums, zoos, and other institutions. Approximately 50% of the theaters were equipped with IMAX 3D technology. However, by December 12, 2008, market capitalization had fallen to $125 million ("IMAX: Larger," n.d.).

In some instances, IMAX had achieved great success — most notably with films like NASCAR and The Polar Express. Other films were not so successful. This roller-coaster ride of success and failure raised serious questions the company had to confront. Could IMAX thrive as a niche player in the large-format movie industry? Would releasing more Hollywood movies in IMAX format prove to be a blessing or a curse? Should these movies be released simultaneously in both the large IMAX format and the regular theater format? Had the strategic changes IMAX made been effective? To address these questions, an analysis of IMAX's general and industry environments is conducted — including identifying the opportunities and challenges the company faces — followed by a discussion of IMAX's business strategy and the resources, capabilities, and competencies that support it.

General and Industry Environments: Porter's Five Forces

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 the rivalry among competitors, followed by the threat of substitutes. The bargaining power of channels and end users, the bargaining power of suppliers, and the barriers to entry for new competitors are also examined.

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 embarked on an IMAX building spree, by the late 1990s many theater owners filed for bankruptcy, and IMAX suffered with hundreds of millions of dollars in risky debt becoming a serious problem for the organization. Despite buying back $90 million of its debt, laying off 200 employees, and cutting $14 million from its budget, the company was still in dire financial straits (see Exhibits 1, 2, and 3) ("IMAX: Larger," n.d.). Although IMAX has no direct competitors offering involvement in all aspects of large-format films, traditional movie screens remain its main competition — even in theaters where IMAX has its 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% came from theater operations. Distribution partners such as Regal hold significant power by deciding which movies are shown, setting ticket prices — which are often higher than those of regular-sized movies when simultaneously released — and controlling other factors that affect the company's success. These channels also have power over their own expansion and the percentage of that expansion incorporating IMAX technology. End users, too, have significant bargaining power. Although exclusively produced IMAX films exist, the prevalence of other movie outlets — traditional theaters, DVDs, cable, and movies on demand via the Internet — means consumers have a wide variety of viewing options, often at considerably lower cost.

The bargaining power of suppliers is less of an environmental concern for IMAX. As a full-service large-format filmmaker, the company has limited supplier dependencies. Specialized inputs such as the uniquely manufactured large-format film stock could be significant, as these are not common items. A planned technological conversion to digital format will reduce supplier bargaining power even further, while also lowering the company's cost of operations.

The barriers to entry for new competitors work in IMAX's favor. To compete directly with IMAX across all levels of the large-format film industry, a new competitor would require substantial capital. Currently, large theater chains are not positioned to enter into direct competition — which is precisely why companies like Regal continue to partner with IMAX rather than challenge it.