2009 was a blowout year for the box office, but will 2010 be a blockbuster year for IMAX
The company's CEO, Richard Gelfond, told me in Part 1 of my interview that 2010 will be a good year, given the slate of films on tap this year, ranging from DreamWorks'
In this second installment of my interview with Gelfond, we talk about growth opportunities and challenges that lie ahead for the company. Gelfond says IMAX is just arriving at first base, and sees international markets as a major growth portal. He also says the transition to digital has given IMAX the flexibility to show multiple movies on one screen, which will create incremental profits.
Here is an edited transcript of our conversation.
Jennifer Schonberger: As the digital transition has begun to take hold for IMAX, when will you begin to take advantage of economies of scale?
Richard Gelfond: I think we are right now. For Avatar, for example, one film print costs $60,000 and one digital print costs about $200. So I don't think we need the scale. The benefits were immediate.
Schonberger: Where would you say IMAX is in the life cycle?
Gelfond: I think really just getting out of our infancy and into our pre-teens. To use a baseball analogy, we're just arriving at first base.
Schonberger: Do you see IMAX 3-D as eventually becoming the new standard of movie format?
Gelfond: I don't, because our goal is not to be on every street corner. We want to make it a special experience and a premium experience. So I think if people want to see something at the high end that's very special, I think more and more in the world they'll be able to see it on IMAX.
Schonberger: You've teamed up with Discovery
Gelfond: Both is the answer. I think we still have a long way to go out of home, and we have a lot of ideas about new products out of home. For example, we recently announced a portable IMAX theater -- so we could put it in Central Park in New York, or Hyde Park in London. We could show either a film or live content. We could show the World Cup. You could put it in rural China. So that's an example of our product extensions outside the home. I think there's a huge opportunity inside the home, too, that we've just scratched the surface of.
Schonberger: Do you ever see yourself partnering with someone like a Netflix
Gelfond: They just seem very directed on a niche market that it's hard to see how we fit together. But we're very open-minded.
Schonberger: What new opportunities do you see ahead that IMAX has yet to conquer? In other words, where is the greatest untapped growth potential for IMAX?
Gelfond: I would say we're starting to work on bringing foreign content into our network. So that means we're releasing a Chinese movie in China -- it's called Aftershock -- this July. So I think our ability to really increase our local content into local international markets will really unlock an enormous amount of potential over the next couple of years.
Schonberger: What are the biggest challenges facing IMAX?
Gelfond: I think the entertainment landscape is shifting very rapidly, both in home and out of home, and I think you have to be flexible and agile to try and make the right bets, and, if you make the wrong ones, to figure out how to turn them into the right ones.
Schonberger: I understand your joint-venture partner AMC has rolled out its own big screen. Has AMC communicated any kind of strategy to you for its enhanced theatre experience? At what point does a joint-venture partner go to a competitor?
Gelfond: I think the strategy they're doing is "good, better, best." I think IMAX is positioned at the best. I think their [Enhanced Theater Experience] is positioned as better, and I think their regular 3-D is positioned as good.
I think you're naive in any business if you don't expect to see some competition ... over time I think you never see a successful industry where people don't try their own. Fortunately for us, I think the first mover who has a brand and has a technological edge usually wins.
Schonberger: Your revenue mix has enabled you to achieve a more dependable revenue stream, has it not? Has your cost of financing gone down as a result?
Gelfond: I like to think of it more as recurring revenues, which is what we do more under the joint-venture model and our revenues from the studios. Our only debt right now is from a bank, and it's relatively low. It's around 3.75% now. … So we delevered significantly. I think a combination of our delevering, the low cost of money, and our financial turnaround has lowered our cost of capital.
Schonberger: Any plans to repurchase stock?
Gelfond: In the future, we're going to be generating a lot of free cash flow if we hit our targets, and I think we'll have to make a decision when we get there what the best uses are.
Schonberger: What's your sense of the strength of the economic recovery, both domestically and globally?
Gelfond: If you're in the movie business, you've been somewhat immune to this. From the perspective of your own business, it looks like the world is recovering fairly nicely. If you look at our results in Russia and China, they're just so impressive -- the rising tide that you see coming in. However, to take a sobering view, when you look at other sectors of the economy, it's much more mixed. At the moment, I would say I'm cautiously optimistic about the economy. I think it's coming out -- at least in the U.S. and China -- of its worst period. But I think it remains to be seen how enduring recovery is.
Schonberger: Any last thoughts?
Gelfond: One of the things digital enabled us to do is become much more flexible in some of our programming. So even though this weekend we played How to Train Your Dragon, we were still able to have midnight shows for [Alice in Wonderland]. Some theaters are playing Alice and Avatar. Also, I think the flexibility of digital around the strength of the release schedule will really enable us to accommodate a lot of audiences and also create a strong financial model.
Interested in more? Check out Part 1 of my interview with IMAX CEO Richard Gelfond.
Fool contributor Jennifer Schonberger owns shares of Disney but of no other companies mentioned. You can follow her on Twitter. Walt Disney is a Motley Fool Inside Value recommendation. IMAX is a Motley Fool Rule Breakers selection. Walt Disney, DreamWorks Animation SKG, and Netflix are Motley Fool Stock Advisor picks. The Motley Fool has a disclosure policy.