A visitor watches the world's biggest Imax screen at the China Science… (Imaginechina )
In the ballroom of a tony hotel in downtown Beijing, a dozen women dressed in gold to resemble Oscar statuettes gathered on a stage lined with giant rolls of unfurled film. Alongside, a coterie of dignitaries and American and Chinese theater executives stood behind a giant director's clapboard that snapped shut, sending off fireworks and a stream of confetti from the ceiling.
The ceremony, held in late March, was part of an event marking a historic agreement between Imax Corp., the big-screen theater company, and Wanda Cinema Line, the largest theater operator in China.
Their pact, valued at $100 million, calls for opening 75 theaters in the country over the next three years. It represents the first revenue-sharing arrangement of its kind in China for Imax, which has been building relationships in the world's most populous nation for more than a decade.
The Canadian company, which has offices in Toronto and New York and a large operation in Santa Monica, has been aggressively expanding its business not only in China but in Russia, Brazil, India and other emerging economies as well. In such places, the theater industry has plenty of room to grow, and rising middle classes with more disposable income are hungry for American entertainment.
The international marketplace is becoming increasingly critical for Hollywood studios, which now amass more than 50% of their annual box-office revenue abroad.
In the last three years, Imax's global theater network has expanded nearly 80% to 528 theaters, including 201 in foreign markets, where the per-screen revenue tends to be substantially higher than in North America, thanks to strong consumer demand and higher ticket prices. An Imax ticket costs more than $20 in countries such as Brazil and Japan, compared with about $15 in the United States.
The company plans to open at least 100 theaters annually for the next several years.
"We are significantly underpenetrated in the international markets," said Imax Chief Executive Rich Gelfond. "The addition of Imax theaters in those markets will be a big driver of Imax's growth in the future."
Known for its big format 50- to 60-foot-wide screens, Imax uses proprietary projection and sound systems intended to envelop the viewer. Depending on the country, customers pay at least 35% more than regularly priced tickets for the experience.
For many years, Imax was constrained by the fact that it showed a small number of releases, mainly nature documentaries such as "Everest" and "Living Sea" in museums.
Today, however, the company distributes about 20 films a year and is an important player in the mainstream theater industry, releasing animated family movies such as "Toy Story 3" and increasingly fan boy and action flicks such as "Fast Five" and "Tron: Legacy." About 40% of Imax's box-office revenue from such films derives from international ticket sales.
The company's transition to digital technology has spurred rapid overseas growth. Imax developed a digital print system in 2008, eliminating hefty costs to distribute Imax 70-millimeter film prints, which run up to $50,000 each.
About two-thirds of Imax theaters use digital projectors, making it easier and more efficient to deliver prints worldwide and coordinate the release of movies in multiple languages and territories.
The circuit enjoyed record profit in 2010, but like the industry as a whole saw a sharp slowdown both in ticket sales and attendance in the first quarter because of a dearth of hits and none that matched the popularity of the 3-D blockbuster "Avatar."
Imax reported a first-quarter loss of $1 million, compared with a profit of $26.5 million in the prior-year period. Revenue fell to $45.2 million from $72.8 million in the first quarter of 2010.
Investors have responded favorably to Imax's performance, sending shares up 23% this year amid assurances from company executives that business will bounce back this summer with a stronger slate of movies and growth in countries such as China.
Some analysts have expressed concern that Imax faces growing competition from Beverly Hills-based RealD, which supplies 3-D equipment and licenses big-screen technology used by some major theater chains. Others have cited potential challenges that Imax could confront in emerging markets like India, which heavily favors Bollywood films over Hollywood fare.
Still, many are encouraged by Imax's prospects.
"They've got years and years of growth ahead of them," said Michael Pachter, a Wedbush Securities analyst.
China is by far the fastest growing market for Imax, where the company already has 45 theaters, with many more on the way. It will have 177 theaters in China by 2015 — more than the size of its entire circuit when it released "The Dark Knight" in 2008, Gelfond told investors at a conference last week.