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IMAX - Imax Corporation - Goldman Sachs 22nd Annual Communacopia Conference Transcript

    Analyst

    Yeah. And you mentioned laser, I assume that's one of kind of your key priorities, but maybe you could give us a couple other two or three things that you are very focused on for the next kind of couple of years to kind of drive this business to the next level.

    Richard Gelfond

    Chief Executive Officer
    Okay, as I said laser, it's definitely one of them, because not only it will light the bigger screens, but it will create more differentiation between IMAX and other technologies. So laser is way brighter than even the brightest film projector today. And I should mention because 3D is obviously a separate issue, I don't know if you are going to get to that, but it's in somewhat of a decline, but that doesn't matter to IMAX. We always say whether it's 2D or 3D what matter is IMAX and there is not really much differentiation in our pricing of 2D or 3D and some of our most successful movies have been 2D movies, but the brightness issue especially in 3D is remarkably different, because you're obviously wearing glasses, that take away a lot of the color, really parts will be better contrasted. So that's one of our priorities.

    Another one of our major priorities is continued differentiation. So this year The Hunger Games all the film, all of the content shot in arena the is done with IMAX's cameras, which although we can convert and I talked about that before with the cameras you get a different aspect ratio, which is more vertical rather than the traditional one, which is more letter box. And that's increasingly becoming interesting to filmmakers. So Chris Nolan is shooting Interstellar that is releasing next year, a lot of it, probably he did the Dark Knight and the Dark Knight Rises with IMAX cameras and Interstellar he is probably using even more, Michael Bay is using a digital camera for Transformers 4 and he is really excited about it, he was going to shoot 15 minutes and it turns out he's doing a lot more than that.

    We are talking to J.J. Abrams, who's doing test now about the next Star Wars being used with partly IMAX cameras. But there is all kinds of differentiation things. So, if you'd use our cameras, you could use other cameras, but still more to our aspect ratio. So there is a film coming out in China this Saturday called Young Detective Dee by the director called Tsui Hark. It's the first time in China they have ever used a different aspect ratio to get instead of being letterbox and you go into IMAX, you get more of the IMAX experience, because it's vertical. We are upgrading our sound system. We are always working on things like that. Our philosophy is really to always get better.

    So, that would be a differentiation and then a third major goal I would say, which is probably the first one is to increase our global footprint. So, we've done an extremely good job of that. We are in 54 countries right now. We used to be really focused on the domestic market, but just anecdotally to give people a sense. So, we have about 330 theaters open in the U.S. right now, some in backlog to get around 400; in China we have 115 commercial theaters open right now and our backlog is up to 400.

    So the Chinese market will be as big as the North American market as that backlog sold itself out, we have like 40 theaters in Russia. In the UK, we had eight theaters, two or three years ago now including the backlog , it's around 30, same sort of numbers in Canada. So if you think of the business model, which we talked about at the beginning, it's really to have this relatively fixed cost structure and to grow out the network on a global basis and in a way it's similar if you think about an HBO that has a fixed cost of content and it increases its subscriber base, it's a model kind of analogous to that. And then there are number of other priorities under that, but if I had to pick three, those will be the three.

    Analyst

    Yeah, that's a great summary.

    Richard Gelfond

    Chief Executive Officer
    Sorry to interrupt. One other thing, but it's premature and I don't like giving half a story, but I don't want to surprise people either is our brand is so strong like in China we have a 95% brand awareness in the U.S. and our revenue base is fairly low. We are always looking for places we can migrate our brand into. And I'm not going to do unless it's a high ROI business, unless the capital needs are sort of quantifiable, I'm not going to bet the form on it, but that's also an internal priority as looking at places, where we can leverage our brand.

    Analyst

    Yeah. As you described today and then also in recent earnings call, you kind of talked about this three constituents in your business, you have the exhibitors, you have the studios and then you have the consumers. I think that's a useful way to kind of approach it. So, I am going to just ask a couple of questions. I will start with the exhibitors and then we can work through to the other two. But with the exhibitors, you talked about how there are two business models or two ways that the exhibitors can pay you, there is the JV revenue sharing model or there is the sort of the outright sale. How do you approach that in terms of making the decision of whether you are going with the JV or the outright sale or is it more driven by the exhibitor themselves, it's really their call? How that works?

    Richard Gelfond

    Chief Executive Officer
    It's almost completely driven by us. I mean we look at it as an investment, not really as a revenue source in making the calculation. So the question for us is the JV a good investment? And that will depend on things like how successful is the screen and how much do we have faith in the exhibitor, when you look on a worldwide basis, how transparent is the reporting in that territory, what's the rule of law in that territory. And certain places we started by only doing sales, China being a good example, because we didn't know the market that well. But once we got comfortable with the market and once we got comfortable with who our partners were, we transitioned to JV over time.

    There are certain countries like India, like Russia, like certain places in Latin America, where we're just not comfortable doing JVs, because we just don't count on the fact that we are going to get transparency or get our money out. As a matter of fact, anecdotally we recently basically walked away from a deal in Russia for five theaters, because the client insisted on doing a joint venture in Russia and I think given the transparency there and given issues of the court system and everything else I mean I think that's the last place that I want to invest money, so there was our choice to walk away, but it's almost solely within our discussion with one exception.

    There are places like in Singapore, where we really wanted a joint venture, but it's a relatively small market and there was a location on Orchard Rd, which was incredible so we decided there to sell it that's an example where the client resisted that business, but it's almost always our choice.

    Analyst

    Yeah, I'd assume the exhibitors the default position that they prefer the JV , right, because there is no capital upfront or less capital, I shouldn't say no capital, but it's more affordable for them.


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