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In order to increase its pace of development in China， IMAX is planning to sell 20% stakes of its business in China to two investment institutions – China Media Capital and FountainVest Partners.
These two investment institutions are respectively to pay US$40 million for 10% of the IMAX’s stakes one after another around December 2014. With the upcoming US$80 million， IMAX will take an important step forwards to the company’s 5-year IPO plan. Richard Gelfond， CEO of IMAX， said that the IPO could help the company to increase the number of screens in China. This is also why IMAX is urgently looking for heavyweight partners in China.
China has become the second largest market for IMAX next to the North American market. According to its 2013 financial report， the Chinese market contributed to 20% of the total revenue of IMAX and 21% of the entire number of its screens. 58% of the orders came from China as well. The fast development of IMAX matches the timeline of fervor of cinema construction in China. The number of screens in cinemas of China increased from 4000 five years ago to 18 thousand this year. The expansion of channels is thought to be an important reason for the high- speed development of Chinese film. In Mainland China， the box office earnings of movies have already increased from 6.2 billion yuan in 2008 to 21.7 billion yuan in 2013.
The Hollywood blockbusters played an important role in attracting the audience into the cinema. Avatar（2009） for the first time brought the grand visual and audio effect of IMAX and 3D to Chinese audience. According to the statistical data， the 14 IMAX screens in China made the box office of US$25 million from Avatar， accounting for 11.4% of the total box office earnings of this movie in China. In another word， an IMAX screen with Avatar could averagely earn US$1.786 million from the box office.
The combination of IMAX and Hollywood blockbusters sped up the process of audience’s moving the spots of watching movies from their living halls to cinemas. The data from Ent Group showed that six of the top 10 movies in the ticket revenue in 2013 had the IMAX version.
During that process， IMAX also realized that it needs to be more than a single device supplier in China if it wants further breakthroughs in this country.
The first ten years of IMAX in China was haunted by slow progress. The company entered the Chinese market early in 2001 by setting up the cinema of science and education in Shanghai， but there were only 40 cinemas with IMAX screens at the end of 2010. This is related to the operating strategies of IMAX. The company’s major business in the past was to sell their theatrical system. During its initial period of development in China， a cinema that wanted to build a hall with the IMAX screen must buy the whole set of devices from IMAX with over 10 million yuan. This is a great financial burden for cinemas which have a long period of investment returns. Only a few well-established cinemas like Wanda Cinemas were willing to try this.
“Years ago， the market was not so good as the current one. Many halls with the IMAX screen actually suffered the loss，” said an insider from Wanda Cinemas. “Wanda Cinemas is an institution under Wanda Group， a company with a lot of money to offset the loss. Therefore it is able to keep doing this.”
“What IMAX encountered in China was different from their encounter in the North American market. Before IMAX got into the North American market， the cinemas had already established their position in that land. In China， however， IMAX is an element of the market and grew with the cinemas，”said Gelfond.
Hu Qiming， general manager of Lumiai Cinemas， said that IMAX was just an “addition” to the cinemas. “If your cinema has a good location and a good movie is on， the IMAX is a good tool to massive increase the audience and box office earnings. But it has little impact over the improvement of the conditions of cinemas，” he said.
According to the agreement between Limiai Cinemas and IMAX， there should be six cinemas with IMAX screens put into use by the end of 2014. However， the current situation meant that only four cinemas could be opened by then. An important reason is that a standard hall with the IMAX screen should be at least 41 meters tall from the bottom to the floor. It could take more space of the property project. Therefore， it usually takes more time for the cinema operators to talk with property developers when it comes to building the hall with the IMAX screen.
Therefore， the best way to persuade the cinemas to have IMAX screens installed it to create a win-win situation.
IMAX realized this in 2011. It was also when the company changed its strategies. The change started with the agreements with 75 cinemas of Wanda Cinemas. IMAX began to lease the IMAX devices to cinemas and shares the box office earnings from IMAXbased movies with the cinemas. “The leasing contract usually lasts 19 years and IMAX could share 10%-15% of the ticket income. The term of contracts and formulated shares vary to cinemas，”said the aforementioned insider of Wanda Cinemas. This pattern could help lower the investment of cinemas in the early period and allows IMAX to share the profits and risks with cinemas.
Cinemas responded actively to this new pattern. A solid proof is that the number of cinemas with IMAX screens increased to 100 by the end of 2012.
However， nowadays， this risk- and profit-sharing pattern is in face of new crisis. Various cinema operators， seeing the great outlook of the large-sized screens， began to invest heavily into the development of their own big screen system. IMAX has to face an increasing number of competitors in this country.
Among all the brands of big screens in China， DMAX， a product co-developed by Central Pictures Corporation and China Institute of Motion Picture Science & Technology grows the fastest. It set up the first cinema in 2012. By now 50 cinemas in China have been equipped with DMAX and over 60 contracts have been signed. It is expected that there are around 100 cinemas with DMAX by the end of 2014.
The furious competition forced IMAX to think of increasing its competitiveness.
Solving the problem of film source is a good breakthrough point. In the past， the cinema managers complained to IMAX that there were too few movies fitting IMAX in China. Even Hollywood known for the number of films could only produce dozens of movies shot with IMAX cameras or tuned in with IMAX screens every year.
“Several of them are not introduced into China and not all IMAX movies are guaranteed with great box office in all cinemas，” Hu Qiming said.“So we only have the hall with the IMAX screen installed in cinemas with a large number of seats， or else the poor attendance might cause great loss to the cinemas. No one wants to see a hall with hundreds of seat unoccupied during a movie.”
IMAX China， IMAX’s branch in China， is working with local film companies to solve the problem of film source. They not only actively support young directors like Lu Chuan in China， but also spare no efforts in talking the movie producers to turn some of their grand works into the IMAX versions. The IMAX versions of Flying Swords of Dragon Gate and Aftershock each earned over 500 million yuan from the ticket. Chinese Zodiac even had its box office earnings surpass 1 billion yuan.
In addition， in order to increase the gap between them and their competitors， IMAX is studying into a new generation of laser projecting technology and chooses China as one of the first places to promote this technology. The new technology can greatly reduce the wear of the bulb of the projector while increasing the image quality. Previously， cinemas had to spend a lot of money maintaining these bulbs. In July 2013， IMAX signed a contract with Wanda Cinemas， promising to install laser projecting systems in 40 cinemas of this company. In order to continue its expansion in China， IMAX must find some heavyweight partners. China Media Capital and FountainVest Partners are two of them. Even though each of the two companies is to pay a large sum of money – US$40 million for 10% of IMAX’s shares， the deal is still thought to be “inexpensive” given the US$56.5-million income of IMAX in China， 38% annual growth rate in the past three years and orders for more than 200 cinemas in the following ten years. The cost of US$40 million， which means that the arket value of IMAX’s business in China reaches US$400 million， is not high at all.
“I think the value of IMAX in China is underestimated in thee two deals. The factors beyond the financial industry might be the key to forging this deal，” said an analyst from Morningstar.
China Media Capital might be the best partner IMAX can find in China. Prior to that， this fund has invested in Oriental DreamWorks， bought shares of STAR from Fox， and built a strategic partnership with Times Warner. This might be the main reason for IMAX to undersell part of its shares.
These two investment institutions are respectively to pay US$40 million for 10% of the IMAX’s stakes one after another around December 2014. With the upcoming US$80 million， IMAX will take an important step forwards to the company’s 5-year IPO plan. Richard Gelfond， CEO of IMAX， said that the IPO could help the company to increase the number of screens in China. This is also why IMAX is urgently looking for heavyweight partners in China.
China has become the second largest market for IMAX next to the North American market. According to its 2013 financial report， the Chinese market contributed to 20% of the total revenue of IMAX and 21% of the entire number of its screens. 58% of the orders came from China as well. The fast development of IMAX matches the timeline of fervor of cinema construction in China. The number of screens in cinemas of China increased from 4000 five years ago to 18 thousand this year. The expansion of channels is thought to be an important reason for the high- speed development of Chinese film. In Mainland China， the box office earnings of movies have already increased from 6.2 billion yuan in 2008 to 21.7 billion yuan in 2013.
The Hollywood blockbusters played an important role in attracting the audience into the cinema. Avatar（2009） for the first time brought the grand visual and audio effect of IMAX and 3D to Chinese audience. According to the statistical data， the 14 IMAX screens in China made the box office of US$25 million from Avatar， accounting for 11.4% of the total box office earnings of this movie in China. In another word， an IMAX screen with Avatar could averagely earn US$1.786 million from the box office.
The combination of IMAX and Hollywood blockbusters sped up the process of audience’s moving the spots of watching movies from their living halls to cinemas. The data from Ent Group showed that six of the top 10 movies in the ticket revenue in 2013 had the IMAX version.
During that process， IMAX also realized that it needs to be more than a single device supplier in China if it wants further breakthroughs in this country.
The first ten years of IMAX in China was haunted by slow progress. The company entered the Chinese market early in 2001 by setting up the cinema of science and education in Shanghai， but there were only 40 cinemas with IMAX screens at the end of 2010. This is related to the operating strategies of IMAX. The company’s major business in the past was to sell their theatrical system. During its initial period of development in China， a cinema that wanted to build a hall with the IMAX screen must buy the whole set of devices from IMAX with over 10 million yuan. This is a great financial burden for cinemas which have a long period of investment returns. Only a few well-established cinemas like Wanda Cinemas were willing to try this.
“Years ago， the market was not so good as the current one. Many halls with the IMAX screen actually suffered the loss，” said an insider from Wanda Cinemas. “Wanda Cinemas is an institution under Wanda Group， a company with a lot of money to offset the loss. Therefore it is able to keep doing this.”
“What IMAX encountered in China was different from their encounter in the North American market. Before IMAX got into the North American market， the cinemas had already established their position in that land. In China， however， IMAX is an element of the market and grew with the cinemas，”said Gelfond.
Hu Qiming， general manager of Lumiai Cinemas， said that IMAX was just an “addition” to the cinemas. “If your cinema has a good location and a good movie is on， the IMAX is a good tool to massive increase the audience and box office earnings. But it has little impact over the improvement of the conditions of cinemas，” he said.
According to the agreement between Limiai Cinemas and IMAX， there should be six cinemas with IMAX screens put into use by the end of 2014. However， the current situation meant that only four cinemas could be opened by then. An important reason is that a standard hall with the IMAX screen should be at least 41 meters tall from the bottom to the floor. It could take more space of the property project. Therefore， it usually takes more time for the cinema operators to talk with property developers when it comes to building the hall with the IMAX screen.
Therefore， the best way to persuade the cinemas to have IMAX screens installed it to create a win-win situation.
IMAX realized this in 2011. It was also when the company changed its strategies. The change started with the agreements with 75 cinemas of Wanda Cinemas. IMAX began to lease the IMAX devices to cinemas and shares the box office earnings from IMAXbased movies with the cinemas. “The leasing contract usually lasts 19 years and IMAX could share 10%-15% of the ticket income. The term of contracts and formulated shares vary to cinemas，”said the aforementioned insider of Wanda Cinemas. This pattern could help lower the investment of cinemas in the early period and allows IMAX to share the profits and risks with cinemas.
Cinemas responded actively to this new pattern. A solid proof is that the number of cinemas with IMAX screens increased to 100 by the end of 2012.
However， nowadays， this risk- and profit-sharing pattern is in face of new crisis. Various cinema operators， seeing the great outlook of the large-sized screens， began to invest heavily into the development of their own big screen system. IMAX has to face an increasing number of competitors in this country.
Among all the brands of big screens in China， DMAX， a product co-developed by Central Pictures Corporation and China Institute of Motion Picture Science & Technology grows the fastest. It set up the first cinema in 2012. By now 50 cinemas in China have been equipped with DMAX and over 60 contracts have been signed. It is expected that there are around 100 cinemas with DMAX by the end of 2014.
The furious competition forced IMAX to think of increasing its competitiveness.
Solving the problem of film source is a good breakthrough point. In the past， the cinema managers complained to IMAX that there were too few movies fitting IMAX in China. Even Hollywood known for the number of films could only produce dozens of movies shot with IMAX cameras or tuned in with IMAX screens every year.
“Several of them are not introduced into China and not all IMAX movies are guaranteed with great box office in all cinemas，” Hu Qiming said.“So we only have the hall with the IMAX screen installed in cinemas with a large number of seats， or else the poor attendance might cause great loss to the cinemas. No one wants to see a hall with hundreds of seat unoccupied during a movie.”
IMAX China， IMAX’s branch in China， is working with local film companies to solve the problem of film source. They not only actively support young directors like Lu Chuan in China， but also spare no efforts in talking the movie producers to turn some of their grand works into the IMAX versions. The IMAX versions of Flying Swords of Dragon Gate and Aftershock each earned over 500 million yuan from the ticket. Chinese Zodiac even had its box office earnings surpass 1 billion yuan.
In addition， in order to increase the gap between them and their competitors， IMAX is studying into a new generation of laser projecting technology and chooses China as one of the first places to promote this technology. The new technology can greatly reduce the wear of the bulb of the projector while increasing the image quality. Previously， cinemas had to spend a lot of money maintaining these bulbs. In July 2013， IMAX signed a contract with Wanda Cinemas， promising to install laser projecting systems in 40 cinemas of this company. In order to continue its expansion in China， IMAX must find some heavyweight partners. China Media Capital and FountainVest Partners are two of them. Even though each of the two companies is to pay a large sum of money – US$40 million for 10% of IMAX’s shares， the deal is still thought to be “inexpensive” given the US$56.5-million income of IMAX in China， 38% annual growth rate in the past three years and orders for more than 200 cinemas in the following ten years. The cost of US$40 million， which means that the arket value of IMAX’s business in China reaches US$400 million， is not high at all.
“I think the value of IMAX in China is underestimated in thee two deals. The factors beyond the financial industry might be the key to forging this deal，” said an analyst from Morningstar.
China Media Capital might be the best partner IMAX can find in China. Prior to that， this fund has invested in Oriental DreamWorks， bought shares of STAR from Fox， and built a strategic partnership with Times Warner. This might be the main reason for IMAX to undersell part of its shares.