Imax - Larger Than Life

To achieve its stated growth objectives, IMAX must determine what, if any, courses of action it must take to reverse its precipitous revenue declines, decrease its debt, and become profitable or face possible insolvency. This action requires in-depth looks into the industry, the market, and the firm. The options available to IMAX to accomplish this include, among others, negotiating with Hollywood film studios to gain rights to convert and show more studio films, expansion into more multiplexes, sale of the firm, increasing marketing campaigns for IMAX-format films, and decreasing its scope of operations by locating and focusing on core technological competencies to establish competitive advantages.

To begin, the industry in which IMAX functions must be clearly defined. Although it operates across multiple SIC codes, the industry value system can be broken down with a focus on the core activities of IMAX, namely that its industry is best defined as the production and distribution of large format film viewing equipment and associated films (Ex. 1). This industry definition stems from a value chain analysis, and an analysis of the numbers associated with IMAX’s operations. More than 82% of IMAX’s revenues come directly from the sale and lease of the unique film equipment and large-format films IMAX produces or converts, with more than 51% of the total stemming from equipment sales. IMAX spends nearly $4.2M annually on R&D and has achieved significant technological achievement in the development of equipment designed for enhancing the viewing experience. Clearly, the main focus of IMAX is the development and distribution of large-format film viewing equipment and films.

With an understanding of the industry, IMAX can determine the viability of the options it has available to reverse its decline. First, IMAX needs to be aware of the complementor status of the other film studios and their films (Ex. 2/3). Given that IMAX’s primary focus is technology and its special screening systems, the films made by other companies that are converted to IMAX-style serve as complements to IMAX. IMAX is presently the only significant player in the industry of large-format films. IMAX’s monopolization of this type of film presentation format and the fact that viewers are willing to pay $3-5 more than an average movie ticket, allows IMAX to take advantage of its position to enter negotiations with films studios with a goal being to gain the right to convert more films to IMAX format. IMAX earns 7% of box office revenues from reformatted studio films while it takes 30% of its own films. Of the top 10 grossing films in the IMAX inventory, the 4 owned by IMAX brought in total revenue of $197.5M, of which IMAX kept $59.25M. The remaining 6 films brought in $243.7M, of which IMAX earned $17.06M. Based on scale, if IMAX were to convert all studio films to 2D-IMAX format at a cost of $25,000/film and earned on average 7% of ticket

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