Big screen theatre company Imax Corp. is counting on China for its continued growth, and banking on a new partnership with local investors to make that happen.
Imax chief executive officer Richard Gelfond told analysts and investors on a second-quarter conference call Thursday that a recent deal to sell part of its Chinese operation to investors in that country will help "maximize the growth potential" of a company that is increasingly dependent on international markets.
In April, Imax announced the sale of 20 per cent of its Chinese operation to private equity funds China Media Capital and FountainVest Partners, and said it was considering an initial public offering of that part of the Imax business. Imax already has partnerships with other Chinese groups, including the giant multinational developer Wanda Group.
"China is a complex country to operate in and we feel that having the additional influence and business acumen of these strategic investors could help advance Imax China to a higher level than we could have achieved on our own with our existing network of partners," Mr. Gelfond said.
He said it can be difficult for North American investors to fully appreciate the value of Imax's business in China, but "Chinese investors on the ground locally – smelling, feeling and touching the Imax brand – can see how strong the brand and business have become in China and the potential long term growth of the Chinese entertainment industry in general, and of Imax in particular."
Mr. Gelfond, who led a buyout of Imax from its Canadian founders 20 years ago, said business in China is growing sharply, even as North America is relatively weak.
The company's overall box office revenue was down 2 per cent in the second quarter compared to a year ago, to $216-million (U.S.). Domestic revenue (which includes the United States and Canada) was off 18 per cent, mainly thanks to a weak slate of recent films.
In China, by contrast, box office revenue was up by 47 per cent, driven by the opening of new theatres.
Analyst Marla Backer, of Ascendiant Capital Markets in New York, said China's expanding movie scene gives Imax an opportunity to expand that just can't be matched in North America. But it is also building new theatres in many other countries.
"If they were ignoring growth opportunities in other parts of the world, then I'd say they are not being balanced, but that is not the case," she said. "They are focusing on growing [elsewhere]."
Imax now does the majority of its business outside of North America. In its second quarter, it generated 57 per cent of global box office revenue from international markets, with just 43 per cent from the domestic market.
One reason for the firm's success in China, Mr. Gelfond said, is that Imax was active there just as the movie business was exploding. In western markets, "Imax had to dislodge kind of an existing order to put itself in the middle of the entertainment landscape," he said. "In China, when we started, there were 2,000 screens in the whole country. Now there are 20,000. We grew up with cinema in China."
The recently released Transformers: Age of Extinction did particularly well in China, Mr. Gelfond said. "[It] is our highest grossing film ever in that market, grossing around $35-million so far and surpassing the previous highest film, Avatar, by 50 per cent. … With this film we are all witnessing the power of the Chinese box office."
Mr. Gelfond predicted big global movie hits later this year will include space adventure film Guardians of the Galaxy, director Christopher Nolan's new film Interstellar, which has portions filmed with special Imax cameras, and the last episode of the Hobbit series.
And the next two years could be "some of the strongest box office years in recent history" he predicted, with movies such as Avengers: Age of Ultron, Jurassic World, a new James Bond film, Captain America 3, and Star Wars: Episode VII.
Director J.J. Abrams has said he is filming portions of the new Star Wars movie with Imax cameras.
For the second quarter ended June 30, Imax posted a profit of $13.3-million, or 19 cents a share, up from $11.8-million or 18 cents a year earlier. Total revenue was $79.1-million, down from $81.7-million.
Imax shares, which have slipped from above $31 (Canadian) at the start of this year, rose about 4 per cent on the TSX Thursday to close at $27.72.