Imax to the Max in China
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Canadian-based IMAX (NYSE: IMAX) holds a certain place in my investing heart. It was one of the first companies I invested in fresh out of university, looking to begin amassing my fortune. Its growth has been impressive but their current plans are to push that growth path to a different level by aggressively building out to 400 theatres in China alone. At the end of 2011 they had 518 theaters, 91 of which were in China. They are projecting more than 100 by the end of this year and doubling that in 2013.
To achieve that kind of growth IMAX signed a big deal last year with China’s largest movie theater operator, Wanda Cinema Line. The movie market in China is growing like everything else seems to be, having seen 30% growth year over year for the past decade and reaching $2 billion in revenue in 2011. Wanda is in acquisition discussions with the owners of the U.S.’s 2nd largest theater chain, AMC. So, the pipeline between China and the U.S. is looking to become much more two-way than it has in the past.
With the recent agreement between China and the U.S. to raise the number of films to be imported raised from 20 to 34 per year this will open up this burgeoning market even more.
The consumer discretionary story in China is a very compelling one. We’re seeing growth in so many U.S. multinationals that belie any story about how China is headed for some kind of crash and burn and IMAX is no different. For IMAX, the appetite for U.S. eye-candy seems almost bottomless. Between the performance of “Mission Impossible: Ghost Protocol” and this year’s “The Avengers,” IMAX is seeing box office receipts in China for one week that they previously saw in China for an entire quarter.
The 3-D release of “Titanic” took in $7 million in the first week. Last summer the entire 3rd quarter saw less than $5.7 million for the Greater China region, which includes Hong Kong and Taiwan. “The Avengers” did $1.1 million in business in its first day of release in China’s 175 IMAX screens.
IMAX is rolling out its new laser-focusing projection system which may be the last new technology to hit the market under the Eastman-Kodak name before the company is divvied up to creditors and its R&D secrets scooped up in bankruptcy court. The enhanced system will improve the projection of 3-D films in particular further distancing the IMAX theater experience from the home theater experience.
IMAX is the logical conclusion of the shift in moviegoer tastes with the rise of home theater and streaming video. The big screen loses its allure when you can have nearly the same experience at home for a fraction of the cost even if you took a flyer on buying the DVD unseen as opposed to getting one from Red Box for $1.29. There just isn’t enough of a value proposition at $4 per gallon gasoline, the cost of babysitters and structurally high unemployment and chronic underemployment. This is the reason behind the push to 3-D and bigger blockbusters, but even 3-D alone is not compelling enough. Spectacle, 3-D and the immersive experience of IMAX is currently untouched in the market.
By moving aggressively into China and expanding the number of Chinese films they convert to the format per year IMAX is hedging itself against a cratering of entertainment investment should the U.S. experience a serious economic shock to its system. The Southeast Asian market is rapidly becoming its own story on to which one can graft the effects of American and European investment, not the other way around.
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