2. IMAX: Individual Case Study
Introduction to the case and Issues Identification
Main Issues
Substitution of IMAX Screens to Premium Large Format Screens
Studios and exhibitors both stand to make better profit by cutting IMAX out of the equation by
substituting their product with their own premium large format screens. Currently, approximately
1/3 of box office revenues gained by IMAX films are given to IMAX, a cost which is shared by
both the studio and exhibitor. This concern is not confined to only North America; Russia and
China have also recently begun the process of securing their own premium large formatted
screens. Should this trend continue to grow and spread internationally, the need for IMAX will
become increasingly diminished and could ultimately result in IMAX’s irrelevance.
Lack of Growth Strategy
The last major issue with IMAX is the lack of a detailed growth strategy on how they plan to
expand their business into the BRIC countries. This is especially difficult due to the various
countries each having their own unique political, economic and cultural challenges. Taking into
account that each screen they wish to build costs a significant estimated investment of $350,000
each screens location will have to be purposefully decided upon. Without a growth strategy that
weigh these different variables, IMAX’s uncoordinated expansion could result in devastating
loses and the end of the company.
Subsidiary Issues
Stagnant North American Domestic Movie Sales
IMAX’s single strongest customer base in a specific country continues to be the United States,
even as international revenues overcome North American sales. A smaller issue though is that
the North American movie sales have been stagnant for the last five years. This lack of growth
indicates that alternative methods of entertainment have become increasingly prevalent, resulting
in decreased box office sales which could mean the beginning of a saturated North American
market. This is significant to IMAX since it would limit their growth in the North American
region and force them to seek expansion in foreign markets.
Contract Renewal with Exhibitors
Many of the contracts IMAX establishes with exhibitors are valid for an initial period of 10-13
years. It is after that period when the additional term options of 5-10 years becomes available.
During 2017 many of the initial contracts IMAX has signed will be expiring. With the
introduction of the premium large format screens, it could save exhibitors from paying IMAX
the revenue sharing costs which would bring about the danger of the contracts not becoming
renewed after they are completed. Ultimately, this could severely damage IMAX’s position as
the go-to partner for premium quality movie experiences and their following.
3. Environmental Analysis
SWOT: Internal & External Analysis
Strengths
Partnerships
IMAX has an incredible amount of partners that it works with to bring their screens to the movie
market. The ability of the company to work with other companies and continue to create value
for both parties has been an essential part to their survival and one of their biggest strengths. It is
through these partnerships that they are not only able to bring many more of their screens, but
also create IMAX movies, maintain their equipment, provide advice on theatre design, train
theatre personnel, an perform ongoing maintenance to ensure their high quality standards are
adhered to.
Unique and Premium Cinematic Experience
IMAX is known in particular for its incredible high quality cinematic experience. IMAX
technology powerfully projects film onto a curved screen to immerse and captivate the audience
watching the film. The screens are not only curved, but are incredibly large as well which results
in a larger impact on the audience and justification to charge a higher price. The experience is
unique and proprietary as well, with 99 patents being held in the United States and more in
foreign countries. It is through these variables that IMAX has a distinctive advantage in the
movie industry that enables it to offer a cinematic experience at a higher quality unlike any other.
Weaknesses
Format Conversion Constraints
Since converting a regular digital file into an IMAX file takes two to three weeks and $20,000 -
$50,000 it limits the availability of IMAX formatted movie files to the public.
High Cost
The investment of each screen built and installed costs an estimated $350,000. This significant
dollar amount means that IMAX must carefully and purposefully decide on which locations are
worth investing in for the creation of an IMAX screen. By choosing the wrong pattern they could
be losing out on potential sales and significantly delay their expansion. In the worst case
scenario, a reckless decision could lead the business to losing money.
Opportunities
Partnerships with Foreign Movie Producers
As the Chinese movie Aftershock showed, the potential for successful, big commercially
produced IMAX films exists in BRIC countries. This not only addresses the issue of having a
limited selection of IMAX movies due to language barriers, but it also supports the local
economy of that country and can create a way for IMAX to gain the support of their respective
government as well. Furthermore, some governments create laws on having a minimum quota of
local work being shown in exhibits. By partnering with foreign movie producers it will
encourage increased revenues since those countries have a limited selection to choose from.
IMAX being part of that limited selection can create a strong, lasting advantage for the company.
Create their own IMAX theatre chains
Another opportunity that IMAX has is the opportunity to create their own theatre chain and reap
a larger portion of box office sales by themselves. This would enable them to dramatically
4. increase the production of the special IMAX screens and create improved economies of scale per
screens. Additionally, this would enable IMAX to not rely on other theatre chains and their
contracts if they choose to do so, bringing the company more predictability.
Threats
Premium Large Format Screens
One of the biggest threats to IMAX is the introduction of premium large format screens. These
screens are becoming an increasingly popular alternative to IMAX’s screens for theatres as they
provide similar results and enable the theatre chain to not revenue share with IMAX which gives
them a better profit margin.
Shrinking North American Appetite
Another threat is the stagnant growth in North American box office sales due to the increasing
popularity of watching movies on home entertainment devices or on mobile devices instead. This
should be alarming to IMAX because it would indicate a saturated market as the industry is
unable to grow. As such, IMAX will become forced to seek growth outside of North American
borders and in foreign countries instead. In addition, with the advancement of technology many
films have been become commonly illegally downloaded which has dramatically resulted in
decreased box office sales.
PESTE Analysis
Political
Chinese Government
The Chinese government has been known to create foreign policies revolving around
interference and protectionism. China currently has a limit of 34 foreign film imports. In four
years though the quota is planned to be lifted, but the government still urges theatre owners to
reduce Hollywood screen time and replace them with local productions instead to support their
own local movie industry. This is a concern that IMAX should pay special attention to as it could
affect their sales, should the Chinese government decide to prolong the quota limitation on film
imports since IMAX movies are dominantly from the outside of China.
Russian Government
Since Russia’s annexation of Crimea resulted in sanctions against Russia, a rise of significant
Russian people have recommended retaliation on the United States films. Other government
proponents believe it is in the best interests of Russia to limit Hollywood movies presences in
Russia. This could be harmful to IMAX since they only approve a limited selection of movies to
be played in their theatres and the majority of them are from Hollywood.
Economic
Currency Exchange
By expanding into various new countries IMAX will have to pay special attention to currency
fluctuations as this issue could alter their financial position significantly when they are unaware
of it. This is especially true for countries that IMAX will be a player in that have large currency
fluctuations. To combat this, IMAX should consider the practice of hedging to ensure stability in
their financial position.
5. Growing BRICS GDP
Another economic factor to be aware of is the growing BRIC countries’ economies in the form
of their GDP. As IMAX is a company which provides entertainment, a non-essential service,
IMAX will require the country they venture into to have people who can afford to indulge in
such a luxury; especially if the target segment that IMAX chooses to pursue needs to be large in
the company they wish to venture into. The economics of the country can be measured easily by
looking at its gross domestic product, a healthy growth in GDP largely translates into a
financially healthier populace.
Sociological
Prevalence of Home Entertainment Systems and Mobile Entertainment Devices
A sociological trend that has been negating growth in the North America box office market are
home entertainment systems and mobile devices. As consumers choose to use these alternatives
to watch a movie at a box office instead, box office sales will continue to struggle in achieving
growth. IMAX’s tied interest in box office sales will result in the limited expansion alternatives
as box office sales hit saturation for the North American markets.
Increasing Chinese Appetite for Affordable Luxury
The Chinese open 10 new screens every day, and have more than 12,000 multiplex screens. The
Chinese have an enormous demand for affordable luxury and are engrossed with Hollywood
movies. This is a significant opportunity for IMAX to engage in and satisfy that growing demand
as a luxurious cinematic experience.
Technological
Premium Large Format Screens
PLF screens are a new technology that is a lower quality substitute for IMAX screens. The main
advantage of premium large format screens is that they are non-proprietary; therefore, the box
office which uses this technology instead of IMAX technology will not have to revenue share
with IMAX.
Smart Mobile Devices
More and more people today are using mobile devices in their everyday lives. One of the main
benefits having a smart mobile device is the variety of functions it is capable of – including
playing and saving movies. As technology relentlessly continues to improve, people are
becoming increasingly likely to utilize their smart phones to watch movies on them as they offer
increasingly better quality and convenience despite their small size. This is a factor which could
decrease IMAX’s revenues as people substitute the box office experience for watching movies
on their mobile phone instead.
Environmental
Environmental Benefits of Watching at the Box Office
The global concern for the environment has led many people to orient their lives into a more
sustainable fashion. One of the biggest benefits of watching at a box office in contrast to
purchasing DVD’s is the lack of materials necessary to watch it. For example, the DVD
packaging required to sell 10,000 copies of a movie would require a lot of plastic. When you go
to a movie theatre though the box office though the only material you require is the receipt as
your proof of purchase. Theoretically, this should increase IMAX’s revenues.
6. Geographic Weather Characteristics
Depending on the location of certain countries their weather can be dramatically different with
significant fluctuations throughout the year. As IMAX faces the difficult challenge to decide on
which order they should expand to and prioritize, the weather of that country can play a
significant variable on how much revenue they can earn as many movie goers attend a movie in
part depending on their weather conditions.
Porter’s 5 Analysis
Supplier Power: Low - Medium
IMAX is in a strong position as when it comes to supplier power as the amount of assistance they
require from their supplier is largely minimal. There is the scientist in Toronto who developed
DMR that IMAX does need to depend on, but since his financial success is also tied in with
IMAX’s financial success the cost of him increasing the price to IMAX is very unlikely. IMAX
continues to have a strong grasp on their operations and is healthy in other regards respective to
their supplier power.
Buyer Power: Medium
Two significant factors to determine the appropriate level buyer power should be placed at
include: the amount of buyers the business has and the cost to the buyer from switching from
IMAX to an alternative. Since IMAX has a large customer base that decreases buyer power, but
since there is no cost for a buyer to switch to an alternative that increases the buyers’ power to
influence prices. As such, buyer power is medium.
Threat of Rivalry: Medium - High
IMAX’s threat of rivalry is medium-high for two significant reasons. Firstly, many competitors
exist competing against IMAX, these competitors continue to gain ground on offering a premium
cinematic experience rivaling IMAX’s. Secondly, since IMAX is unique and has proprietary
technology they are not completely at risk against rivalry as currently no other company is able
to offer the same services that they do.
Threat of Substitution: High
The threat of substitution to IMAX is high as there are various alternatives to the IMAX
cinematic experience when a consumer wants to watch a movie. For example, there are the
cheaper cinematic movies which may not be as immersive but still deliver the movie quite well,
there are DVD’s for home entertainment systems when people want to stay at home instead, and
lastly there is also the option to illegally pirate movies which has become increasingly more
prevalent.
Threat of New Entry: Low
The threat of new entry is low for two significant reasons. Firstly, the technology that IMAX
utilizes and its competitors is highly capital and knowledge intensive. The time and capital
required to compete in this industry are not easily obtained. Secondly, IMAX has proprietary
patents on its technology which protects the business from new entrants hoping to join the
industry and offer the same services as IMAX.
7. CAGE Framework
Cultural Administrative Geographic Economic
Brazil - Christianity
dominant faith
- Portuguese is
the official
language and is
used for all
business and
administrative
purposes
- Four different
time zones
- Direct access
to the Atlantic
Ocean
- Close to 80%
of population are
classified as
middle class
China - Buddhism
dominant faith
- The official
language of
China is
Mandarin
- Very large land
mass that is
bigger than the
United States
located in East
Asia
- Middle and
higher classes
are estimated to
cross 700
million people
by 2020
Table 1 CAGE Framework
Strategic Alternatives
Build own Theatre Chains
1. Pro: The first pro of opening their own theatre chains is that IMAX will no longer need to
worry about contracts not being renewed with their partners once they expire. Now, they will
have the ability to be less dependent on their partners. Through this alternative they will gain
more control over their operations and ensuring they are run the way they like it instead of
relying on their partners.
2. Pro: Another benefit of this alternative is that it will cut out one party from the supply chain.
Now, IMAX will be theatre and won’t need to revenue share with the theatres that they used
to revenue share with which will create a new revenue stream for the business.
1. Con: As IMAX is not experienced in running cinema chains it could be financially risky to
venture into this industry.
2. Con: It betrays IMAX’s core competencies for a different part of the same business. IMAX
is about delivering an immersive, luxurious, premium cinematic experience and not movie
theatre management. As such, it will require many new knowledgeable employees and a
complete business restructure.
Focus on Expansion into Foreign Markets
1. Pro: Foreign Markets are expanding both in population and economically. This provide a
vast new market for IMAX to capture.
2. Pro: New foreign markets will provide new demand for IMAX to produce additional
equipment. This new demand will come increased production along with economies of scale
for the equipment being produced.
8. 1. Con: There are numerous political and economic differences each country has to become
knowledgeable about and understand to ensure a smooth transition into that country. One
example of such is government corruption, which could test the ethics of IMAX should the
government decide to be difficult to work with and ask for illegal gifts.
2. Con: There are also cultural differences that are particular to specific countries populations
such as masculinity, indulgence and uncertainty avoidance.
Focus on Virtual Reality instead
1. Pro: Virtual reality is a new and exciting technology which is also a form of immersive
technology, a variable which IMAX prides itself on.
2. Pro: Another benefit of Virtual reality is it serves more than just entertainment purposes as it
can also be used for interactive educational activities and games.
1. Con: It’s an industry and technology which IMAX does not have much experience with and
sacrifices the neglects the core competency that they have worked so long to establish
already.
2. Con: The new costs for research and development required for this technology is not only
vast but would also come along with a large degree of uncertainty since at this point in time
there is not many other players in the virtual reality industry.
Option Evaluation
Figure 1 Option Evaluation Chart
Final Recommendation
Recommendation
The option evaluation chart is a tool to help decide the most optimal alternative with 5 points
being the most optimal and 0 points being the least attractive. It is through the total points that
the alternative of expanding into foreign markets is numerically calculated to be the best
recommended alternative for IMAX. It is recommended for IMAX to pursue Brazil and China
and Russia instead of India due to economic, political and cultural variables which align to
distinct key success factors of IMAX. Among these include a healthy middle class that align with
the customer archetype of IMAX and a strong demand that is correlates with IMAX’s
capabilities. Also, change the business model to a fixed annual cost with cost savings from
economy of scale derived from increased production for foreign markets.
0
1
2
3
4
5
Alternative 1 - IMAX
Chains
Alternative 2 -
Foreign Markets
Alternative 3 -
Virtual Reality
Risk Time Cost Profit
9. Core Competency
The core competency of IMAX is that it is able to provide technology to theatres which project a
higher quality film.
Competitive Advantage
The competitive advantage of IMAX is that they deliver a unique and immersive cinematic
experience that surpasses its competitors in quality. In addition, IMAX is well branded and is
known for their quality which leads to increased sales for those that are seeking the IMAX
experience.
General strategy recommended & impact
The recommended strategy is that of a wide differentiation strategy. By following this type of
strategy it will enhance market capture for those who are seeking an experience above the
ordinary for their cinematic experiencing needs. This will justify the increased price IMAX
charges in comparison to its lesser quality counterparts. This strategy also adds creates value for
the organization as it fulfills the need of consumers who wish to experience the full potential that
they can and satisfy their ego at their capability of being able to do so.
Implementation (Marketing & Basic Financial Analysis)
Customer Archetype
The customer archetype that IMAX is recommended to target are both men and women. While
65% of their customers are between the ages of 18-59, younger teenagers play contribute a
significantly large portion to movie sales. As such, the customer archetype should be considered
from 16-59 years old. They enjoy experiencing a higher quality service, celebrate opportunities
for social gatherings, and enjoy experiencing new cinematic stories.
Marketing Mix Analysis
Product
1. Unique and high quality cinematic experience -> B2C
2. Proprietary equipment along with maintenance and support training -> B2B
Place
1. Movie theatres with IMAX capabilities around the world -> B2B + B2C
2. IMAX training facilities and locations -> B2B
Price
1. 30% revenue shared with movie creators and movie theatres off ticket prices -> B2B/B2C
2. Varied leasing and licensing price to other businesses -> B2B
Promotion
1. Advertisements within IMAX shows before mixed in with the trailers -> B2C
2. Advertisements in movie related magazines and IMAX themed theatres -> B2B
Financial Analysis
1. Retained Earnings have been steadily decreasing from Dec 31st, 2010 to Dec 31st, 2013. This
happens despite an increase in net income and may indicate a large given dividend to
10. shareholders. Since the previous year Dec 31st, 2012 had $87,166 the retained earnings since
then has dropped in half.
2. Total equity has been increasing since Dec 31st, 2010. This should indicate an increase in
total value of the business.
3. An increase in common stocks since Dec 31st, 2010 indicates increasing investor interest in
purchasing common shares from IMAX.
4. The complete removal of short-term debt and current portion of long-term debt shows that
the company has the potential to take on new debt when cash is needed to pursue their
growth plans.
5. A steadily climbing cash and cash equivalents account since Dec 31st, 2011 is a good sign
that IMAX is improving their financial flexibility for emerging opportunities
6. A simultaneous decrease in the costs of revenues account and increase in total revenue
illustrate improved efficiencies being found within operations.
7. An increase in net income indicates improving financial position relative to operations.
8. A rising research and development account indicates the financial capability to afford
investing into the business’s future and is a sign of financial health and good governance.
9. The increase in the stock price since the drop in 2011 shows returning investor confidence in
the company.
10. An increasing net income applicable to common shareholders strengthens investor perception
upon the company and opens up the option to gather additional capital from issuing stocks
should need for cash arise.
Implementation Timetable
Figure 2 Implementation Timetable
Conclusion
By expanding into foreign markets, IMAX will be enabled to continue to grow despite the issue
of North American box office sales stagnation. In addition, with the new large production
demand, economies of scale will decrease which will enable IMAX to decrease their costs and
charge less on revenue sharing contracts, resulting in renewed contracts. Furthermore, by
changing to a fixed cost business model premium large format screens will become less
attractive. This business plan also gives direction on how to expand into foreign markets to
IMAX as guidance towards a successful growth strategy.
Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Gather financing required to
pursue strategy
Contact existing partners in
selected countries to develop
expansion options
Move to countries and install
IMAX screens
Monitor success of IMAX
theatres
Change IMAX theatres as
required to adapt to new
challenges
IMAX
11. References
Longenecker, J., Donlevy, L. B., Champion, T., Petty, J. W., Palich, L. E., & Hoy, F. (2016). Small
Business Management: Launching and Growing New Ventures (6th ed.). Toronto, Ont.,
Canada: Nelson Education.
