Back in 1997 the CEO of IMAX, Richard L. Geifond, was sceptical about building a story with Hollywood ‘movie star into the big-screen format. At that time his answer to the criticism of IMAX® films’ missing story was: ‘tis too expensive and risky for us to put all our eggs in one basket and hire a major movie star.” However, by 2003, new technological achiovements had made it possible to show, for example, Matric Reloaded on the giant-screen format. This did not just involve the projection ofthe standard theatrical print on to an IMAX screen - the film underwent the patented IMAX DMR® (digital remastering) process, which enhances the quality of the image and soundtrack to the huge 15/70 fim format, the same thing that was. done to Apollo 13, festuring Oscar-winning actor Ton Hanks. ‘So though IMAX have been through financial tough times the company now seems to be looking towards a brighter future IMAX Corporation IMAX Corporation is involved in a wide variety of out- of-home entertainment business activitias. it designs and manufactures projection and sound systems for Giant-screen theatres based on a patented technol: ‘ogy. IMAX Corporation is the world’s largest pro: ducer and distributor of films for giant-screen cinemas. IMAX Corporation, together with its wholly owned subsidiaries, is one of the world’s leading entertain ‘ment technology companies whose principal activities are: 4 the dosign, manufacture, marketing and leasing of proprietary projection and sound systems for IMAX theatres principally owned and operated by inst tional and commercial customers in more then 60 counties (end of 2011); ‘© the development, production, digital remastering, post-production and distribution of certain films shown in the IMAX cinoma network; + tho operation of certain IMAX cinemas located pr ‘mari inthe US and Canada; {© the provision of other services to the IMAX cinema network, including designing and manufacturing IMAX camera equipment for rental to filmmakers and providing ongoing maintenance services for the IMAX projection and sound systems. ‘While IMAX's roots are in the institutional market, it believes that the commercial market is potentially larger. To increase the demand for IMAX cinema sys- toms, itis currently working to position the network as ‘a new window for Hollywood event films. To this end, IMAX has both developed a technology that allows, standard 38:mm movies to be converted to its format and is also working to buld strong relationships with Hollywood studios and commercial exhibition ‘companies. IMAX theatre systems combine advanced, high-res- ‘lution projection systems, sound systems and screens ‘a8 much as eight storeys high (approximately 80 feet) that extend to the edge of a viewer's peripheral vision to create the audiovisual experience. As a result, audi- ‘ences feel as if they are a part of the on-screen action in way that is more intense and exciting than in tradi- tional cinemas. In addition, IMAX's 3D cinema systems ‘combine the samo projection and sound systems and Up to cight-storey soreons with 3D images that further increase the audience's feeling of immersion in the film. IMAX believes that its network of 3D cinemas is the largest out-othome, 3D distribution network in the: world. History The IMAX aystom has its roots in EXPO '67 in Mon- treal, Canada, where muitiscreen films were the hit at the fair. A small group of Canadian fm-makers/entre- preneurs (Graeme Ferguson, Roman Kroitor and Rob- fet Kerr), who had made some of those popular films, decided to design a new system using a single power- {ul projector rather than the cumbersome multiple pro- jctors used at that time. The result was the IMAX motion picture projection system, which would revolu- tionize giant-sereen cinema. As the IMAX screen is ‘about 10 times the size of a conventional movie screen,picture quality has to be very good. The camera required is also much bigger than a conventional movie camera, but for anyone with film experience itis not hard to lear to use it The much acclaimed Fires of Kuwait was nominated for an Oscar in the feature documentary category in 1993, Since the premiare in 1970 more than 700 mi lion people have enjoyed The IMAX Experionce®. In 1977, IMAX was awarded tho sole Oscar® for scioniic and technical achiovement by the Acadomy of Motion Picture Arts and Sciencos, The award recog. nizod IMAX's innovation in creating tho world's bast film capture and projection systom as woll as IMAX's acceptance as part ofthe entertainment mainstream. IMAX Ridefilm: entry and departure Historically, another part of the corporation was the IMAX® Simulation Ride System, which combined giant screen technology with aspects of an amusement park ride. (One of Ridefim Corporation's new state-of-the-art projects became a realty in 1993. Back fo the Future ~ The Ride, directed by Douglas Trumbull, premiered in June at Universal Studios, Hollywood. This high-tech attraction was considered by entertainment industry ‘experts to be the paradigm for the film experience of the future, The Ridofilm concept consisted of 18-per: ‘son projection rooms in which the seats were equipped with seat belts and moved with the action on the screen. The fim is projected on a 180-degree screen, with digital surround sound. IMAX never succeeded in becoming profitable in the Ridefim business. One reason for this might be that it never reached the critical mass of about 100 cinemas needed to support the three or four Rideflms per year required for profitability, Inthe fiscal year 1999, IMAX. was forced to write off Ridefilm's assets, resulting in a charge of US$13.6 milion. Development of IMAX’s businesses and products Generally speaking, IMAX does not own its cinemas, but leases its projection and sound systems and licenses the use of its trademarks. IMAX derives reve- nue principally from cinema system lease agreements, maintenance agreements, film production agreements, ‘and distribution of fis. In 2002, IMAX introduced @ technology allowing the. conversion of live-action 35-mm films to its 15/70-for: mat at a modest incremental cost, while meeting IMAX's high standards of image and sound quality, CASE STUDY M4 maxcoRPoRATION (67) IMAX belioves that this proprietary system, known as: IMAX DMR (Digital Re-Mastering), has positioned IMAX cinemas as a new release window or distribution platform for Hollywood's biggest event films. As of 31 December 2005, IMAX, along with its studio partners, had released 11 IMAX DMR films. In 2005, IMAX released four fims converted through the IMAX DMR. process contemporaneously with the releases of the films to conventional 35 mm theatres, re-released one IMAX DM film that had previously been released in 2004, and released one film made specifically for IMAX cinemas. In March 2003, IMAX introduced IMAX MPX, a new cinema projection system designed specifically for use by commercial multiplex operators. The IMAX MPX system, which is highly automated, was designed to reduce the capital and operating costs required to run an IMAX cinema while stil offering consumers the image and sound quality ofthe trademarked "The IMAX. Experience’ Cinema system leases IMAX's system leases generally have 10-20 year initial terms and are typically renewable by the customer for ‘one or more additional 10-year terms. As part of the: lease agreement, IMAX advises the customer on design and custom assemblies and supervises the installation of the system; provides training in using tho equipment to cinoma personnal; and for a separate foo provides ongoing maintenance of the system. Pro- spective cinema owners are responsible for providing the location, the design and construction of the build- ing, the installation ofthe system and any other neces~ sary improvements. Under the terms of the typical lease agreement, the title to all cinema system equip- ment (including the projection screen, the projector and the sound system) remains IMAX's. IMAX has the Fight to remove the equipment for non-payment of other defaults by the customer. The contracts are gen- erally not cancellable by the customer unless IMAX {ails to perform its obligations. The contracts are gen- erally denominated in US dollars, except in Canada and Japan, where contracts are generally denomi- nated in Canadian dollars and Japanese yon, respectively. The typical lease agreement provides for three major sources of revenue: intial rental fees; ongoing addi- tional rental payments; and ongoing maintenance fees, Rental payments and maintenance fees are generally received over the life of the contract and are usually adjusted annually based on changes in the local con- sumer price index. The terms of each lease agreement vary according to the system technology provided and the geographic location of the customer.(68) PART MaRKETENTRY STRATEGIES IMAX films IMAX produces films that are financed internally and through third partis. With respect to the latter, IMAX {generally receives a film production fee in exchange for producing the films and is appointed the exclusive dis tributor of the film. When IMAX produces films, it typ: cally hires production talent and specialists on a project-by-project basis, allowing IMAX to retain crea tive and quality control without the burden of significant ‘ongoing overhead expenses, Typically the ownership rights to films produced for third parties are held by the film sponsors, the film investors and IMAX. IMAX is a significant distributor of 15/70 format films, with distribution rights to more of these fims than ‘any competing distributor, and generally distributos films that it produces, and it has acquired distribution rights to films produced by independent producers. As a distributor, IMAX generally receives a percentage of box office receipts, International marketing IMAX markets its cinema systems through a direct sales force and marketing staff located in offices in Canada, the US, Europe, China and Japan. In addition, IMAX has agreements with consultants, business bro: kers and real estate professionals to find potential ‘customers and cinema sitas for IMAX on a commission basis IMAX has experienced an increase in the number of commercial cinama and international signings since 1995. The commercial cinema segment of IMAX’s net work is now its largest. As of 31 December 2014, 54 pper cent of all theatres were outside North America IMAX's institutional customers include science and natural history museums, 2008, aquaria and other edu cational and cultural centres, IMAX also leases its sys tems to theme parks, tourist destination sites, fairs and expositions. See Table 1 for an outline of IMAX's ‘operations by area, With regard to revenues, IMAX had a clearly nega tive financial development from 2006 to 2009. During that period, IMAX lost US$77.3 milion. However, since 2009 IMAX has been in financially positive tertitory, ‘mainly cartiod by the film Avatar, which had an enor: ‘mously positive effect on the 2010 result. Since then (up to 2015) IMAX has been in a state of positive and stable development (see Table 2b). No one customer represents more than 5 per cent of IMAX's installed base of cinemas. IMAX has no dependence upon a single customer, of a few custom: ers, the loss of any one or more of which would have a materially adverse effect on IMAX. IMAX breakdown of installations by am ‘geographic segment as at 1 December 2014 and 31 December 2010 2014 2010 installed installed base base Canada 46 26 us 385 201 Mexico 18 19 Europe 101 % Asia (excluding China) 68 18 China 215 40 Rost of World 104 8 Total 934 518 IMAX revenues and net income (US$ millon) 2014 20132012 Total revenu 2005 2879 2028 Notincome (milion US$) 422444418 ‘As of 31 December 2014, IMAX had 600 employ- 20s, excluding hourly employees at company-owned and operated cinemas, IMAX enters the Chinese market The first IMAX projection system in a cinema in China ‘was installed in December 2001, and there are cur- rently 215 IMAX cinemas operating there (see Table 1) China is now IMAX's second-largest market (after the US) and the fastest-growing. In order to enable further growth in China, in 2011, IMAX formed IMAX China, a Wholly owned subsidiary. Also in 2011, IMAX entered, into key joint revenue sharing relationships in China, including a 75:cinema arrangement with Wanda Cin- tema Line, which is the Company's largest single inter rational partnership to date, and reflects an even’ greater financial investment in China. As IMAX furthers, its commitment to China, itis increasingly exposed to risks in that region. These risks include changes in laws. and regulations and currency fluctuations. Some of these risks and uncertainties of doing business in China are within the control of the Chinese government, ‘and Chinese law regulates both the scope of IMAX's investment in China and the business conducted by IMAX within China.‘Competition in the industry ‘The outof-home entertainment industry is very com petitive, and IMAX faces a number of challenges. IMAX. ‘competes with other large-format film projection sys- tom manufacturers, as well as, indirectly, conventional mation picture exhibitors. Most of the manufacturers of large-format fm pro: jection systems that IMAX competes with utilize smaller film formats, including eightperforation film frame, 70-mm and 10-perforation fm frame and 70-mm for mats, which IMAX belioves deliver an image that is inferior o The IMAX Experience. As already mentioned, the IMAX cinema network and the number of 18/70 format fms to which IMAX has distribution rights are ‘substantially larger than those of its competitors, and IMAX DMR films are available exclusively to the IMAX network. IMAX's customers generally consider a num: ber of criteria when selecting @ large-format theatre, including quality, reputation, brand name recognition, type of system, features, price and service. IMAX believes that its compatitive strengths include the value of the IMAX brand name, the quality and historic up time of IMAX cinema systems, the number and quality ‘of 15/70 format films that it distributes, the quality of the sound system in the IMAX cinoma, the potential availablity of Hollywood event films to IMAX cinemas through IMAX DMR technology and the level of IMAX’s service and maintenance efforts. Neary al of the best performing large-format cinemas in the world are MAX. In addition to existing competitors, IMAX may also face competion in the future from companies in the entertainment industry with new technologies and/or substantially greater capital resources. IMAX also {faces inchome competition from a number of alternative motion picture distribution channels such as home Video, pay-per-view, video-on-demand, DVD, internet and syndicated and broadcast television. IMAX further ‘compates for the public's leisure time and disposable income with other forms of entertainment, including ‘gaming, sporting events, concerts, lve theatre, social media and restaurants, Furthermore, the out-othome entertainment industry in general is undergoing significant changes. Primarily due to technological developments and changing con sumer tastes, numerous companies are developing, and are expected to continue to develop, new enter: tainment products for the outot-home entertainment industry, which may compete directly with IMAX's: products, ‘The motion picture exhibition industry i in the early stages of conversion from film-based to electronic: based media, IMAX is similarly in the early stages of CASE STUDY Is maxcoRPORATION (69) oy [Audience watching a fim in an IMAX cinema developing a digital projection system that can be uti- lized in IMAX cinemas. In recent years, a number of companies have intro- duced digital 3D projection technology. According to the National Association of Theater Owners, there are approximately 1,700 conventional-sized screens in US. multiplexes equipped with digital 3D systems, How- ever, IMAX believes that its IMAX brand name and its IMAX DMR technology, including its patented cinema geometry, differentiate it significantly from other 3D presentations. Until now the IMAX cinemas have out- performed the conventional cinemas on a per-screen revenue basis, However, the competitive risks could include the eed for IMAX to raise additional capital to finance remanufacturing of cinema systems and associated conversion costs, capital that may not be available to IMAX on attractive terms, The commercial success of IMAX's products is ult- mately dependent on consumer preferences. The out cof-home entertainment industry in general continues to go through significant changes, primarily due to tech- nological developments and changing consumer tastes. Numerous companies are developing new entertain- ‘ment products for the out-of-home entertainment indus- try and there are no guarantees that some of these new products will not be competitive with, superior to or more costeffective than IMAX's products. Latest film releases ‘At the end of September 2009, IMAX Corporation and Sony Pictures announced that the highly anticipated motion picture, Michael Jackson's This is it, would be roleased for a special run in selected digital IMAX cin- femas worldwide during the film's limited two.weok engagement in thousands of cinemas globally starting on 28 October 2009, This is it was to be digitally70) PART WARKETENTRY STRATEGIES remastered by the use of IMAX DMR technology. When ‘screened, the crystal-clear images coupled with IMAX's customized cinema geometry and powerful digtal aucio created a unique environment that made audiences fee! as if they were in the fim. Chronicting the months from March through to June 2008, the film was produced with the full support of the estate of Michael Jackson land drew from more than 100 hours of behind-the scenes footage, featuring Jackson rehearsing a number ‘of his songs for the show that never took place because of his death on 25 June 2009. In March 2010, Avatar: An IMAX SD Experience completed its intial run as the alltime highest gross. ing IMAX release; the worldwide IMAX box office total for the fim climbed to more than US$220 milion since the fim's launch in December 2009, This success was the main reason for the fantastic financial result in 2010, which saw a net income of US$100.8 milion, In 2014, the biggest successes were with Robocop ‘and Captain America, In 2015, IMAX reported results with key franchise title including Games of Thrones, Jurassic World, Mis sion Impossible 5, The Hunger Games and not least Star Wars, which was released in December 2016 in a ‘cooperation with Walt Disney Studios. QUESTIONS 1. Discuss the statement back in 1997: ‘It is too expen- sive and risky for us to put all our eggs in one basket and hite a major movie sta.” 2. What wore the main reasons for the failure of IMAX Ridefim? 3. Can IMAX's core competences be transferred tothe marketing of high-volume commercial products? ‘Which types of product could these be? 14, What are the possibiitios of growing the IMAX busi- ress with the new IMAX MPX system combined with their new IMAX DMR technology, which enables Hollywood studios to digitally remaster their films into IMAX's 15/70? 5. In 2011, a wholly owned subsidiary, IMAX China, ‘was formed. What are the advantages and disad- vantages for IMAX ofthis entry mode initiative? ‘Sources: based on IMAX press releases; vvn.imax other publicly availabe information. IMAX®, IMAX DMIR®, ‘The IMAX Exporionce® and An IMAX 30 Exporionco® are registered vademarks of IMAX Corporation. OSCAR® i the registered trademark and service mark of the Academy of Motion Picture Arts and BVAKG