Case Study on "Imax"

Case Study 10 pages (3389 words) Sources: 2 Style: Harvard

[EXCERPT] . . . .

IMAX Case Study

IMAX's General and Industry Environments

IMAX's Business Strategy and Their Resources, Capabilities and Competencies that Support Their Business and Corporate Strategies

Can IMAX Survive as a Niche Player?

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IMAX Larger than Life: Case Study

In 1967, filmakers Graeme Ferguson, Robert Kerr and Roman Kroitor were inspired by the success of a multi-screen theater system they had seen at the Montreal Expo. The three filmakers founded IMAX and became the only company to be involved in all phases of creating large format films. Three years later, in 1970, IMAX's first film premiered at the Fuji Pavilion in Osaka, Japan. In 1994, Richard Gelfond and Bradley Wechsler purchased IMAX for $80 million and took the company public, achieving a market capitalization of $196 million in their first year. By 2008, there were 295 theaters showing IMAX films, in 40 countries. Sixty percent of these theaters were in North America. Fifty percent of the theaters were located in aquariums, museums, zoos, and other institutions. Approximately 50% of the theaters were equipped with IMAX 3D technology. However, by December 12th, 2008, market capitalization had fallen to $125 million ("IMAX: Larger," n.d.).

In some instances, IMAX had reached great success, such as the release of films like Nascar and the Polar Express. Other films were not so successful. The roller coaster ride of success and failure has led to serious questions IMAX must face. Can the company thrive as a niche player in the large format movie industry? Could releasing more Hollywood movies in IMAX format be a blessing or a curse for the company? Should these movies be released simultaneously in both the large IMAX format and regular theater format? Have the strategical changes IMAX has made been effective? To answer these questions, an analysis of IMAX's general and industry environments is conducted, including identifying the opportunities and challenges the company faces. IMAX's business strategy is discussed, along with an analysis of IMAX's resources, capabilities and competencies that supports their strategies.

IMAX's General and Industry Environments:

To answer the important questions facing IMAX, an analysis of the company's general and industry environments must be conducted to better understand the situation at hand. Using Porter's Five Forces, this analysis begins with analyzing the rivalry among competitors and followed by the threat of substitutes. The bargaining power of channels and end users must also be taken into consideration, as well as the bargaining power of suppliers and the barriers to entry for new competitors.

The rivalry among competitors in the movie industry is fierce. In the early 1990s, IMAX partnered with leading theater chains including: AMC, Cinemark and Regal. However, although these partners had went on an IMAX building spree, by the late 1990s, when many theater-owners filed bankruptcy, IMAX suffered with hundreds of millions of dollars of risky debt being a serious problem for the organization. Despite buying back $90 million of its debt, laying off of 200 employees and $14 million in budgetary cutbacks the company was still in dire financial straights (See Exhibits 1, 2 & 3) ("IMAX: Larger," n.d.). Although there are no direct competitors, offering involvement in all aspects of large format films, traditional movie screens are still IMAX's main competitors, even in theaters where they have their unique system installed .

The bargaining power of channels and end users is also significant. The company generated nearly 83% of its total revenue from IMAX system sales and films, while just over 14% was garnered from theater operations. Partners, such as Regal, in distributing their unique films have significant power by not only deciding what movies are shown but also by setting ticket prices, which are often set higher than regular-sized movies when simultaneously released, and other factors that can affect the company's success. These channels also have power over their own expansion and the percentage of expansion that will incorporate IMAX technology. End users too have significant bargaining power. Although there are exclusively IMAX films, the prevalence of other movie outlets -- traditional theaters, DVDs, cable, and movies on demand via the Internet, means that there are a variety of other movie viewing options consumers can enjoy, often much less expensively.

The bargaining power of suppliers is less of an environmental factor for IMAX. As the company is a full-service large format filmmaker, their suppliers are limited. Hard materials such as the specially made large format film could be significant, as it's not a common item. A planned technological conversion to digital format will reduce the bargaining power of suppliers even further, while also reducing the company's cost of operations.

The barriers to entry for new competitors are an environmental factor in IMAX's favor. To compete directly with IMAX, in the large format film industry, at all levels, a new competitor would need significant capital. Currently, large theater chains are not in a position to go into direct competition, which is the reason why companies like Regal are continuing to partner with IMAX.

The opportunities and challenges affecting IMAX are as varied as their movies. IMAX has already seen a sneak peek of the potential in releasing Hollywood movies in IMAX format. The success of the Polar Express is just the tip of the iceberg. Remastering already released films, such as IMAX did with Apollo 13 and the Matrix Revolutions, is another opportunity the company should be further exploring. Classic movies like the Wizard of OZ could be financial blockbusters for the company. Post release IMAX conversions, like the Matrix Reloaded, earned the company $11.7 million, while Beauty & the Beast saw $32 million in revenue. Polar Express earned the company $45 million in revenue, with its simultaneous release. Remastering of an existing film typically only takes 13 to 16 weeks, much less time than shooting and editing an entire film from scratch ("IMAX: Larger," n.d.). Of course, the primary threat is the concern that these Hollywood movies may dilute the IMAX brand.

IMAX films originally were most often documentaries -- unique pieces of artistic films created to specifically take advantage of the large format film's ability to immerse the movie goer in the film experience. Films like Everest and Nascar are part of what makes IMAX so unique. IMAX is not just about watching normal Hollywood films on a bigger screen, but instead an entire event unlike normal movies. Although converting Hollywood movies to IMAX format may increase revenues, in the short-term, long-term it could damage the IMAX unique brand. Funding for the true IMAX full-immersion films could dry up as the trend goes towards the easier conversion of pre-made movies.

As mentioned, 50% of IMAX theaters were located in institutions such as museums and zoos ("IMAX: Larger," n.d.). There is a significant opportunity in expanding IMAX's presence outside of these institutions. New partnerships with theater chains, like the current partnership with Regal, will allow IMAX to expand into other more traditional theater areas. However, much of IMAX's success is due to the placement of their theaters in these institutions.

IMAX has a unique brand image that they've built through not only their award-winning documentaries but also, in part, due to their location in prestigious, institutional venues like the Smithsonian Institution and the Museum of Science and Industry in Chicago. This brand has been of great benefit to the company over the years. As an example, the company does not have to pay for the big name, multi-million dollar stars that Hollywood uses when they make a movie. In fact, even their 3D films, at a total of $10 million to produce, is much less than what Hollywood often pays for just one of the bigger stars ("IMAX: Larger," n.d.). If IMAX is truly going to compete with Hollywood their production costs could skyrocket if they seek to use the similar crowd-drawing Hollywood star talent. In addition, as in the 1990s, there is a concern with expanding to quickly, especially given the shaky economic conditions in North America, IMAX's primary presence, as well as the theater industry in general.

Only 10% of films, historically, recover their investment from domestic theater release. In addition, only 60% of movies ever recover their original investment ("IMAX: Larger," n.d.). To help maximize revenues, theaters carefully selected release dates around holidays and in order to minimize competition with other movies of the same genre. This hyper-competitive industry, coupled with a historic record of 40% of movies losing money, is a threat and can result in IMAX repeating their past of the 1990s, should they over expand.

IMAX's Business Strategy and Their Resources, Capabilities and Competencies that Support Their Business and Corporate Strategies:

IMAX's current business strategy is one that looks to offset the current threats the company faces, with a difficult industry, and their own weakness of being primarily present through institutions, as opposed to more traditional movie venues which may attract more revenue. They have begun to expand outside of their traditional institutional setting, especially with their partnership with Regal theaters and their contract to expand IMAX to… READ MORE

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