IMAX (NASDAQ:IMAX) is a fad. It’s just a really big screen with really great sound. For now, it bucks the trends of the past few decades of multiplexation — the chopping up of single big screens into little theaters. However, people will one day stop paying a premium to see a movie in IMAX, just like they walked away from CinemaScope.
Add in high gas prices, and it makes the value proposition even less enticing. Add in the difficulty of traveling farther than usual to see a movie, and the “let’s go see it in IMAX” trend will go the way of the “let’s go see it in THX” trend.
IMAX movies are right only for certain types of content. Not every film is released in genres appropriate for IMAX, and with Hollywood content going from bad to worse, that’s yet another reason people will balk at ponying up the big bucks. Every year will have those tentpole movies that attract audiences to IMAX, but a quick look at this year’s list of films show that five IMAX releases were bombs.
A movie like Sanctum, released in the spring, means virtually nothing to the IMAX top line. Not every film will be Avatar or Harry Potter. In fact, most won’t. Given that IMAX only gets 10% to 15% of box office and concession sales from films in IMAX theaters, the cut isn’t large enough for the recurring revenue model to have a major impact every single year. I don’t care how many IMAX screens are expected. The content will never be good enough to have those theaters filled all the time.
Don’t believe me? IMAX just reported second-quarter earnings that disappointed many. The reason? Analysts blame it on bad content. So do I.
For that matter, a study by Arthur de Vany in his book Hollywood Economics demonstrated that it is impossible to predict box offices. Why would anyone invest in a company when you can’t predict revenues?
Furthermore, the secular trend in entertainment is moving toward home theater and mobile devices. Sure, people will always go to the movies, but the number of box office admissions during the past decade has been flat to down. In fact, it’s down 17% since 2002, and this year down 10% over last year. Kids these days equate the TV, movie and Internet viewing experience. They aren’t the ones with the disposable income. It’s tough to get them into theaters, let alone pay extra for IMAX.
IMAX is a short at some point in the future. When? Hard to tell. You have to wait for IMAX insanity to reach a fever pitch, then watch for cancellations on screen installations.
Lawrence Meyers has no positions in any stock mentioned. He invites you to check out his first book, in which he learned how to use his intellect to analyze things like stocks, or his second book, which is all about the television business.