New Business

IMAX, the Box-Office Supercharger


In Hollywood, bigger is invariably better. So when Twentieth Century Fox (NWS) was looking to generate buzz for Avatar, James Cameron's $380 million space adventure, it enlisted the help of IMAX (IMAX) and its ginormous, ultra-high-definition screens.

Since moving from the science museum to the multiplex a few years ago, IMAX's immersive viewing experience has become de rigueur for any Hollywood studio with a big-budget "tent pole" picture on its schedule. Nine of the top 10 movies with the best opening weekend of the last year were shown on IMAX-equipped, as well as regular, theaters. In 2009, U.S. theaters outfitted with IMAX technology showed 14 feature films, vs. eight in 2008. Avatar was able to reach nearly $1 billion in ticket sales as quickly as it has in part because it opened on 261 IMAX screens around the world.

Jeffrey Katzenberg is a believer. "What you get from IMAX is the ability to create an old-fashioned event that gets people out of their homes and into a movie theater," says the DreamWorks Animation SKG (DWA) CEO. In 2008 he agreed to distribute all of his company's upcoming animated films on IMAX.

The appeal is all in the numbers. Theaters charge up to $15 per ticket for an IMAX flick vs. $10 for a regular movie. So though there are only 280 IMAX screens in U.S. cinemas (vs. 39,000 regular screens), they can turbocharge a film's opening-weekend box office and stoke word-of-mouth. DreamWorks has already benefited: Last March, IMAX screens generated 10% of the opening gross for Monsters vs Aliens. Fox attributes 14% of Avatar's business to 3D IMAX showings.

IMAX attracts 18- to 24-year-old geeks who typically would rather stay home playing video games, according to Paul Dergarabedian, who follows industry trends for Hollywood.com. "They're the ones who drive box office higher," he says. A film that might do $175 million worth of business in the U.S. can easily get to $200 million if it is shown in IMAX, says Piper Jaffray analyst James M. Marsh.

IMAX, looking to rev up its business, began putting its gear in U.S. cinemas in 2003. Under a joint venture with theater chains AMC Entertainment and Regal Entertainment Group (RGC), IMAX gets a third of the cinemas' take from ticket and concession sales. In return, IMAX retrofits theaters with large curved screens, ground-trembling sound systems, and digital projectors. It also pays the $1 million fee to convert each flick into its special digital format.

The Mississauga (Ont.) company has signed deals with every studio but Universal. "We've put the wow into the moviegoing experience for them, and they're the ones who are calling us," says CEO Richard Gelfond. The studios, he says, get the added benefit of supersized, high-definition trailers. "People come out wanting to see that studio's next films as well."

IMAX has helped Hollywood pull off a record year: The industry sold $10.6 billion worth of tickets in 2009. IMAX has done well, too. It collects 12.5% of every ticket the studios sell in cinemas equipped with IMAX technology. As a result, IMAX is expected to make money in 2009 for the first time in three years. Hanover Square Research analyst Marla Backer figures IMAX will earn $5.8 million on revenues of $157.1 million, up from $106.2 million in '08. The stock is trading at a 52-week high of 14, up from a low of about 4 in 2009. She credits the turnaround to IMAX's embrace of Hollywood.

IMAX and the studios intend to keep the show going. IMAX will build or retrofit 238 theaters worldwide in the next 12 months, enough to boost its capacity by 50%. Studios are already jostling to get on IMAX screens. This summer, Warner Bros. (TWX) had to wait two weeks after opening Harry Potter and the Half-Blood Prince because IMAX had committed those dates to Paramount Pictures' (VIA) Transformers 2: Revenge of the Fallen. Walt Disney (DIS), which has opened several films on IMAX, couldn't find screens for its big animated film, The Princess and the Frog.

"As long as IMAX is constrained by the numbers of screens, there's going to be a lot of competition," says Summit Entertainment CEO Rob Friedman, who recently signed on to get an IMAX slot next year for The Twilight Saga: Eclipse, the third installment of the vampire blockbuster.
Ron_grover2
Grover covers the media and entertainment industry for Bloomberg Businessweek in Los Angeles.

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