Imax Shows Signs

Analyst opinion has been mixed, with one lowering his price target, another questioning how many theater exhibitors will opt for Imax conversions and a third saying that this might be Imax's year to shine.

Co-chairman Richard Gelfond says that "some are focused on macro trends and some on the penny miss in the third quarter. By every metric we've shown significant year-over-year growth." In 2004, for example, Imax signed agreements for 36 theaters; it will easily hit 40 to 45 for last year. Moreover, Imax box office returns were up 35% last year.

While there is a drag on the theatrical exhibition business given the tightening of release windows between movie openings and DVD releases, Gelfond asserts that "people will leave home if something is compelling enough for them to do so." That premium audiences are willing to pay to see large scale movies in the Imax format seems to justify that assertion.

The other factor that seems to handicap the stock is the idea that upgrade-minded film exhibitors will choose something obtusely referred to as "digital" instead of Imax. That debate revolves around the cost savings of exhibitors using digital projectors and screens and the worry they won't dole out the upfront cash to convert theatres to Imax.

Gelfond explains that while digital upgrades are inevitable and a digital strategy is something the company is in the process of working on, "Digital conversions are not a competitive product with Imax." The notion that it's either go big with Imax for $1.5 million in capital or upgrade to digital is a red herring, according to Gelfond. Gelfond notes that films in the standard 35-millimeter format are marginally improved when digitized, but they simply don't compare to the experience an Imax picture produces for the viewer.