Tapping Hollywood Makes IMAX Even Bigger

At a particularly low point in his life not long ago, Richard Gelfond, co-chairman and co-CEO of IMAX, along with his partner, Bradley Wechsler, decided that if they wanted to continue in the entertainment business, IMAX would have to go to Hollywood instead of waiting for Hollywood to come to them.“We became more realistic,” Mr. Gelfond said yesterday over lunch. “It didn’t matter that we had a great product. We needed to change – rather than expect others to change. We couldn’t afford to keep on showing just films that we’d produced ourselves. We needed to be able to convert 35 mm Hollywood films into IMAX format. We also needed to retrofit existing theaters with IMAX technology to keep down the costs of new investments.”That was a shrewd business move. It revived the company.“Now we’re on a roll,” Mr. Gelfond said. “Things are looking up again, and IMAX is once again on the trajectory of growth.”This year, for example, he expects 35 theaters to install IMAX technology, which deploys screens that are eight stories high and on which films can be shown in 3-D.The new theaters would complement the 250 in 35 countries that already belong to the IMAX family, most of them part of a licensing agreement.In fact, Mr. Gelfond seemed almost giddy as he discussed the prospects of his company, which he and Mr. Wechsler acquired for $100 million in 1994 from the five Canadian creators of the technology.A film on Nascar grossed more than $20 million last year, becoming the second-most successful documentary ever made in America, trailing only Michael Moore’s “Fahrenheit 9/11.”A recent collaboration between IMAX and Warner Brothers resulted in “Polar Express,” which grossed more than $45 million in 80 IMAX theaters (and $115 million in 8,000 conventional ones).Next month, “Batman Returns” will open at IMAX theaters. Also over the summer, these theaters will show another long-anticipated film, “Charlie and the Chocolate Factory.” On September 21, a 50-minute documentary, “Magnificent Desolation: Walking on the Moon,” will open. It was written and directed by Tom Hanks and mostly financed by Lockheed-Martin, manufacturer of key components of America’s space program.And in November, “Harry Potter and the Goblet of Fire,” based on J. K. Rowling’s mega-selling novels, will be out in IMAX theaters – with simultaneous release in regular movie theaters. IMAX gets up to 15% in royalties from Hollywood films exhibited in IMAX.“What is it that they say – enjoy the day, stop and smell the roses?” Mr. Gelfond said. “I’m living one day at a time. I’m pausing to smell the roses.”Scarcely three years ago, life was not a bed of roses for him. Because of the bursting of the dot-com bubble, IMAX’s stock, which had been trading on Nasdaq for about $30, collapsed to 55 cents in the fall of 2001. As a result, the company’s equity capitalization shrank from more than $1 billion in 2000 to barely $15 million in 2001. The company that Mr. Gelfond fondly calls “our child” was $300 million in debt.“At that point, the choice was simple – declare bankruptcy, or fix the problem,” Mr. Gelfond said. “I’m a fighter. I don’t give up easily. Brad and I, supported by our board, made the decision to tough it out.”It proved to be a wise decision. They raised cash through techniques such as asking for prepayment on deals. They bought back their own bonds at 23 cents to the dollar; then, as the stock price rose, they exchanged equity for debt. They were able to bring IMAX’s debt down to $160 million in about a year; they refinanced that debt through Credit Suisse First Boston – IMAX’s notes aren’t due until 2010. The company’s revenues last year were $150 million, with profits of $10 million. It has cash reserves of $30 million, with 40 million shares outstanding at a price of around $8.50 a share – still nowhere near its pre-2000 highs, but sufficiently encouraging for most Wall Street analysts.“We’ve had a great feeling of vindication,” Mr. Gelfond said. “I love betting against the people who bet against us. We’ll see who’s right.” The last reference was to some 7 million IMAX shares that have been shorted.The feistiness that he displays as IMAX’s co-CEO came early in life to Mr. Gelfond. The son of a Plainview, Long Island, furrier, Leo, and his wife Sara, he graduated from the State University of New York at Stony Brook. He got his first job when he was 8 years old shining shoes. As a teenager, he produced a monthly newspaper for young people called “New York Ball,” which focused on sports and had a circulation of 25,000. He sustained it through ads and subscriptions for 18 months.From Stony Brook, it was on to Northwestern University, where he obtained a law degree. Then Mr. Gelfond clerked for Judge Max Rosenn of the U.S. Court of Appeals, Third Circuit. Then it was on to a robust tenure at the New York law firm of Cleary Gottlieb Steen & Hamilton, where he worked on some of the biggest mergers and acquisitions of the 1980s.“But I realized that I was an entrepreneur at heart,” Mr. Gelfond said. In 1985, he started a venture-capital company, and then founded a dry-cleaning outfit that he nurtured into a chain of 30 stores on Long Island and in Queens. He sold the business to Colgate-Palmolive, and then joined Drexel Burnham Lambert, where he strengthened his financial skills.When Mr. Gelfond and Mr. Wechsler acquired IMAX, it had 90 theaters. They produced 20 or so nature and science documentaries – at about $5 million to $10 million each – and steadily increased the number of theaters showing IMAX films.But it was their wooing of Hollywood that transformed the company a year or so ago.“Essentially, we slashed the cost of converting a traditional movie theater into an IMAX,” Mr. Gelfond said. That cost is now about $1 million, which theaters can recoup within three years if they average 100,000 paying customers annually. Moreover, the cost of converting 35 mm films to IMAX is now about $5 million, including marketing – a bargain for Hollywood producers.“We felt that there were audiences out there that could be tapped by Hollywood – people who were willing to pay a premium price for getting a premium movie going experience,” Mr. Gelfond said.He acknowledged that new technologies such as plasma and high-definition TV screens, satellite cable services, and early release of movies on DVD – two months after theater release, down from the traditional year or so before availability in DVD – had made it more convenient for consumers to stay at home to obtain entertainment.“People need a reason to get off their couches, get out of their homes, and go to a theater,” Mr. Gelfond said. “IMAX is giving them that reason.”And the geographical market for IMAX’s growth?“More than 900 areas, of which just 300 are in America,” Mr. Gelfond said. ‘There’s a big market for the really big screens out there.”

Tapping Hollywood Makes IMAX Even Bigger

Tapping Hollywood Makes IMAX Even Bigger

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