Is IMAX Missing the Big Picture?

It was a Monday to forget for IMAX (Nasdaq: IMAX).

The specialist in big-big-screen cinematic experiences backed a turkey in Speed Racer. The critically panned film was a multiplex dud during its opening weekend, so it follows that the frenetic flick should also swing and miss on IMAX's bigger screens. Sure enough, the film rang up just $1.9 million in ticket sales on 84 IMAX screens.

Only a handful of films get the IMAX remastering, and the company's 0-for-3 this young year with The Spiderwick Chronicles, Shine a Light, and now Speed Racer. It almost makes you wonder whether Pluto Nash 2 or Gigli: The Musical weren't available.

Then came yesterday morning's earnings report. Revenue fell by 12% to $23.5 million during the first quarter. The company's net loss more than doubled to $0.25 a share. Wall Street was looking for IMAX to lose just $0.14 a share on $25.4 million. Put it all together, and you've got one rancid stew.

So why did IMAX shares shed less than 2% of their value yesterday?

Well, because investors are looking at the big picture, and I'm not talking just about the IMAX screens, which can be as tall as eight stories high. Buying into IMAX today is more about its future. That's not a bad direction to focus on, especially since the company inked deals with AMC, RACIMEC, and Regal Cinemas (NYSE: RGC) in recent months. Those were the three biggest contracts of its 40-year history, and the deals collectively cover 166 screens.

Let's get digital
Now that financing is in place, the first of the company's digital projection systems will roll out next month. Going digital means inventory-free distribution and the flexibility for exhibitors to quickly switch gears, with the ability to offer different content and even broadcast live sporting and awards-show events.

IMAX will also bounce back from its streak of box-office clunkers, and not just because things can't get much worse. It has DreamWorks Animation's (NYSE: DWA) Kung Fu Panda opening next month, Time Warner's (NYSE: TWX) The Dark Knight in July, and the next Harry Potter movie -- also from Time Warner -- come late November.

Some good news out of yesterday's report -- beyond the announcement that the digital rollout is on track -- is that DreamWorks Animation will give Madagascar 2 the IMAX makeover. The film opens  Nov. 7, and even though DreamWorks knows the film will get booted from IMAX when Harry Potter hits a few weeks later, the studio is willing to invest in dolling up its star sequel for a very limited IMAX run.

This move tells investors that DreamWorks Animation believes in IMAX, as well as in the digital projection system that makes a quick hit like this financially feasible. It also should tell the market that DreamWorks Animation is dead-set on making its Madagascar franchise a hit. The studio's goal is to have three huge franchises -- Shrek, Madagascar, and possibly Kung-Fu Panda if it's a summertime smash -- that it can turn to for sequels every third year. Then it can pad its release slate by having a "can't-miss" sequel paired with an original flick in any given year.

IMAX will play a big role in taking DreamWorks Animation's computer-rendered releases and turning them into premium movie-house experiences.

Screen pass
You may not see film exhibitors as a growth industry, especially since publicly traded chains such as Regal, Cinemark (NYSE: CNK), and Carmike (Nasdaq: CKEC) trade closer to their 52-week lows than their highs. Even a growth play, such as multiplex ad network National CineMedia (Nasdaq: NCMI), is a bad trading day away from revisiting its lows.

IMAX, on the other hand, is trading closer to its highs. Mr. Market -- like its shareholders -- sees the big picture. Why are you missing it?

For more on the big screen:

• IMAX Is in the Money
• DreamWorks Scores a Bee Plus
• Don't Be Goofy, Send Mom Some Disney Love