Avatar may have been the climax for director James Cameron's career, but it's only the beginning for IMAX
The Canadian company, which designs and sells large-format movie projection systems to theaters and museums, in 2009 reported its first profitable year in three years. The stock has been on a tear since 2009 began, rocketing 290% since the start of 2009 and 34% year to date. IMAX's transition to digital along with its strategy to pursue strategic joint ventures, such as the 2007 move to bring its screens into Regal Cinemas
And with a large slate of films on tap this year, 2010 could be the best year yet. Certainly the first quarter already looks like it will be a blowout and, from a box-office point of view, Gelfond said it's the strongest quarter the company has ever had.
So get your popcorn and take your seat, folks! Here's an edited transcript of our conversation.
Jennifer Schonberger: IMAX returned to its first profitable year in 2009 in three years. How did you position IMAX during the global recession for a new cycle of growth?
Richard Gelfond: The seeds of our growth were actually there for many years, and really they came from two general areas. One was our transition from film to digital, which saved enormous costs for the studios in releasing IMAX movies throughout the world.
Second, we changed our business model from one where we used to sell all of our equipment to one where in many areas we do joint ventures. We still do some sales, but we did some joint ventures. When you put those two together the network grew extremely quickly -- the number of theaters -- and the types of movies and the number of films we were able to get from Hollywood grew very quickly. So it all came together. Both the number of theaters and the number of films and all coalesced to create the financial results.
Schonberger: As you mentioned, joint ventures have played a role in building your business, but do you think Avatar has been the catalyst in helping to build momentum and, regardless, how do you plan to maintain that business' momentum?
Gelfond: I actually think Avatar was a boost to our momentum. [Though] I think that there had been a huge momentum shift pre-Avatar. In fact when you look at our 2009 financial results I think it only includes 13 days of Avatar. So I don't think you'll see the effect of Avatar financially manifest itself in a material way until the first quarter of 2010.
But I think where Avatar played an important role was in increasing brand awareness with consumers. So people who had never been to IMAX before went for the first time to see Avatar. And it's early but the evidence is they're coming back again because Alice is approaching $50 million in box office and IMAX theaters, which it's one of [the] most successful films of all time, and I think part of the reason for that is because of the follow through from Avatar. I think a lot of exhibitors are only now seeing the financial benefits of Avatar again in 2010.
So I think in terms of our key constituencies, the consumers, the studios, and the exhibitors, that Avatar really was a game changer and have yet to see a lot of the momentum that's going to come from it.
Schonberger: With the majority of sales for the blockbuster Avatar coming in the first quarter along with Disney's
Gelfond: Well we haven't yet completed our financials yet -- there are still a few days left in the quarter. But from a pure revenue point of view our Hollywood films generated over $200 million in gross box office in the quarter. So from a box-office point of view, it's the strongest quarter we've ever had. We have to wait a little while to see how it shakes out from a P&L point of view.
Schonberger: What about the rest of the year? What are your expectations given the strong start?
Gelfond: I think we have a lot of good films on our slate for the year. We have a lot of films that have relatively short windows -- so I think we'll pick up very good results. We just started How to Train Your Dragon this weekend and we have Iron Man 2 coming, then Shrek, Toy Story, and Twilight. It's very strong. So I think we're going to have a good year.
Schonberger: Movie theater chains are hiking ticket prices. How will the higher ticket prices impact IMAX's business? Do you think consumers will buy into those higher prices? For instance, this weekend we saw sales for DreamWorks'
Gelfond: I don't think you can attribute either way any part of the Dragon results to ticket prices because people didn't know what the ticket prices were until they showed up at the theaters as a general matter. I think you have to wait a lot more than a weekend. Just to be clear we don't set the prices -- the exhibitors do, and I think they saw the demand for premium 3-D entertainment so strong that they felt that the public would be willing to pay a higher premium for it. From my point of view, I'm optimistic it will work, but we'll see how the public responds.
Schonberger: So you're optimistic it won't adversely impact your business?
Gelfond: I think that there's always elasticity of demand. Price is always a factor. But I think the interest in seeing things in IMAX has been so strong. We're under penetrated -- meaning there aren't as many seats as probably could be filled -- that especially for the movies under high demand they'll still come to IMAX.
Schonberger: Any plans for new joint ventures this year?
Gelfond: Sure. We're in a lot of discussions internationally. Some domestically, and I think that I'd be surprised if we didn't turn some of those into agreements … We announced a few weeks ago a 10 to 15 theater deal with the largest exhibitor in Korea, CJ CGV. We have a lot of discussions going on all over the world, so stay tuned.
Schonberger: So is the international side really the growth side for your business at this point?
Gelfond: I think both are. But I think international is much less penetrated than domestic. I think it's just a bigger opportunity. This is a year where we said we were going to focus on that opportunity. So I would expect that we would see more results internationally.
Stay tuned for Part 2 of my interview with IMAX CEO Richard Gelfond!
Fool contributor Jennifer Schonberger owns shares of Disney, but does not own shares of any of the other companies mentioned in this article. You can follow her on Twitter. Walt Disney is a Motley Fool Inside Value choice. IMAX is a Motley Fool Rule Breakers selection. Walt Disney and DreamWorks Animation SKG are Motley Fool Stock Advisor recommendations. The Motley Fool has a disclosure policy.