3-D Dollars Helping Imax Focus On The Big Picture

Brian Deagon Thu Nov 5, 5:48 PM ET

The picture is getting prettier for real-big-screen company Imax.

There are some 400 Imax theaters, up from 285 in 2006. In most, the screen spans from wall to wall, floor to ceiling.

The trend toward digital movie making, replacing film, has sharply cut production costs, helping the Imax business model.

Last month, Imax reported that it swung to a profit of 2 cents a share in the third quarter, from a loss of 5 cents a year ago. Revenue rose 33% to $43.6 million. Analysts polled by Thomson Reuters called for a profit of 1 cent on sales of $35.4 million. Shares rose 3.1% to 10.89.

With digital, Imax can convert more films -- both 2-D and 3-D -- for viewing on its very large screens. And the ease of working with digital film has more leading filmmakers turning their klieg lights on 3-D.

Richard Gelfond, chief executive of the pioneer in large-format film, projection and sound system technology, recently spoke with IBD about these trends.

IBD: Why are we seeing a flurry of films in 3-D?

Gelfond: It has a lot to do with technology. On the content creation side there are all kinds of amazing tools ranging from computer animation to motion capture, which is what Robert Zemeckis is doing with "A Christmas Carol," to live action 3-D capture, which is what Jim Cameron is doing with "Avatar." So there is a whole new suite of tools on the one hand to create these imaginary worlds in a way that never could have been done before.

On the other hand, exhibitors have a new set of ways to display, whether it's at the premium end with Imax 3-D or at other digital 3-D theaters, which are more ubiquitous and also satisfying. In the 1950s and earlier, 3-D really didn't attract the top filmmakers. But now if you look at the roster of people working on 3-D films, whether it's Jeffrey Katzenberg and the DreamWorks Animation (NasdaqGS:DWA - News) organization or Bob Zemeckis or Tim Burton, who is doing "Alice in Wonderland," you really have the world's top filmmakers using this new technology. And finally the economics will work because there are enough theaters to ensure a payback on the incremental 3-D expense.

IBD: How much has 3-D technology evolved over the years?

Gelfond: At every level it has become a lot easier. Years ago if you wanted to make an Imax movie you had to use Imax cameras and special sets and lighting. Now Hollywood makes its movies using its own technology and we convert it to Imax through proprietary algorithms.

On the exhibition side, Imax used to be film-based with very large and heavy film reels. Now it's just a hard drive. We like to say now that Imax has become a plug-and-play system.

IBD: To what extent has this trend toward 3-D been a benefit to Imax?

Gelfond: Virtually all our theaters show 2-D and 3-D. We view ourselves as the premium 3-D distribution platform and I think the studios and exhibitors view us in a similar way. When people want to see 3-D in the most immersive, exciting way, they go see it at Imax and pay a price premium for doing that. Typically, exhibitors will charge one price for 2-D films, one price for a digital 3-D version and then a higher price for the Imax version.

IBD: How many 3-D films are in production?

Gelfond: About 30. As we look at the Imax slate going into next year, the vast majority of our films are 3-D. Our next film is "A Christmas Carol" and then "Avatar" and then "Alice in Wonderland." There are a lot of 3-D films coming down and at the end of next year we'll be doing "Tron" with Disney (NYSE:DIS - News), which is another 3-D movie.

IBD: Of films shown at Imax theaters, what percentage are in 3-D?

Gelfond: It varies from year to year. In 2009, it will be about 25%-30%. In 2010, it will be more than 50%. But for us, really, it's all about the movie. Whether its 2-D or 3-D, we want to do movies where audiences are really going to benefit from the Imax experience. It just so happens that in 2010 there are a lot of 3-D films to choose from, but if you look at two of our most successful movies of all time, "Transformers 2" and "The Dark Knight," they were in 2-D. It's still about the film and the filmmaker and the story, and 3-D is just another tool that can enhance it a great deal.

IBD: The film "Avatar" is widely anticipated. Will it change the way people think about 3-D movies?

Gelfond: I think that the way Jim made the movie is a breakthrough in 3-D technology. I've seen about 20 minutes of it and I've heard him say it's like dreaming with your eyes wide open. I think that's a pretty good description. It takes special effects to a new level and it's hard to separate out the reality from the special effects.

IBD: One trend among theaters is to elevate moviegoing to a classy night out, with reserved seats and with tables where food and drink is served. Is this a trend that favors Imax?

Gelfond: The real driver in the evolution of theater has been the change in the home theater experience. If you can have a 60-inch or bigger screen in high definition, you really want something better when you go out into the theater. That plays directly into our sweet spot where we deliver better image quality and a more immersive experience and better sound.

It's the kind of experience you can't get in the home, and that is what's driving exhibitors to our business and audiences to our theaters.

IBD: What kind of brand awareness does Imax have among the public?

Gelfond: We haven't done a brand awareness study lately, but we did a satisfaction study. Remember that people are paying 30%-40% more per ticket to see an Imax film. We asked them if they were satisfied and the results were extremely favorable, in the high 80s.