My Experiences -Last time (MELT) – 1214

Last blog of the year?

People who are following my blogs must have noticed that my blogs 0714 to 1114 has gone missing. I was tempted to write on few topics and even had a sketch and outline on what I wanted to write but did not follow through as I thought those topics would create controversy in my social and professional circle and therefore reserved it for better and appropriate time. I am sure this is sounding curious and this will raise many thoughts on what those topics could be. Have patience it will be pressed (sic) sooner than later. I did not want to give a simple explanation for my disappearance such as “I went on sabbatical”.

Another year has come to an end and like any other year this year has been different in many ways. Couple of thought provoking events that stand out, from my perspective, which we need to be aware and conscious of

1. Disappearance of three Aircrafts  this year – Is this a noise or a signal
2. Uber rising to fame – Can the disruptive idea/model be copied in other businesses (albeit recent  bad publicity)
3. New way of terrorist thinking- Recent attacks on school Children in Pakistan.

As you stay with these thoughts, I will write more on these topics in 2015.

Let me take this opportunity to wish all my readers a Happy and Prosperous New Year.

Back to the future

In early 80’s, an ordinary movie ticket used to cost RS 4( 50 cents)   and  Coke or its substitute was around Re 1 per 200 ml ( 12 cents based on exchange rate prevailing in those days). As the years progressed invention of VHS and mushrooming of cable television made access to movie very easy. Many liked the concept of viewing movie in the comfort of their drawing room or bedroom. Further invention of DVD made the quality of viewing better. The digital content also posed a big challenge to anti- piracy. Many theatres in US went bankrupt and people seriously questioned the survival of movie industry. Few television movies and success of soap operas added fuel to the fire. In India the concept of multiplex was at nascent stage (one could spot few in Chennai but not in other cities) and no business was willing to invest on a sunset industry.

Fast forward to present

Transformers: Age of extinction grossed over a billion dollar in 2014. Iron Man 3 grossed a similar amount in 2013. Avatar was the highest revenue earner with $2,7 billion in 2004. Coming to Bollywood, PK an Indian movie grossed around $36 million in 11 days.  Lingga, a regional Indian movie, has grossed $6 million in first six days.

What has changed since 1980? An industry once categorized as sunset started grossing billions of dollars in revenue? Take a guess – to me it is a four letter word. Don’t let your imagination get wild as I was referring to IMAX.

IMAX story:

IMAX is about filming in IMAX cameras and using a different film print as compared to normal print and projecting them in a curved screen that gave a unique viewing experience. The initial experiment of projecting a movie was confined to museums showing natural documentaries as the proposition was simple and less expensive. In 90’s it started licensing its technology to its theatres. This meant an investment of around $ 5million to create space for projection and cost of projector (as normal projector can’t process IMAX format). This was seen as expensive given that the movie industry was seen as sinking. Further, in the pre-digital era, IMAX version of the film print was $30,000 as compared to $1,000 for a normal print. An IMAX print was bulky and it needed extra efforts to lift to the projection room. All these factors made things difficult for IMAX. IMAX also tried producing their own movie using IMAX cameras but the venture was not that successful. Although, everyone acknowledged that IMAX experience was much better than normal theatre experience, the cost and the effort was not worth it even though the initial investment got reduced from $5 million to $1.2 million.

In early 2000, the company took the strategy of installing IMAX projection free of cost and let the theatres deal with the cost of renovating the space (which was roughly 10% of initial investment). In return, IMAX received 12.5% as revenue share for providing the projectors. The theatres could charge at least 20% more on IMAX format of the movie. Further, another technology breakthrough of converting existing movies to IMAX format helped them to make a dent in their market share. But these were not sufficient reason for them to celebrate as their main goal was changing the way Hollywood was producing pictures using IMAX technology and giving differential experience.

They continued to struggle as there were still not enough believers in investing in IMAX. Changing the Hollywood way of doing business over 100 years was another barrier. No bankers came forward to give them line of credit and shares were traded at paltry 55 cents and effort for LBO failed miserably. Mid 2000 was sternest test for IMAX leadership in keeping the morale and motivation of their employees high.

In 2006 another technology breakthrough of replacing their projectors with a plug and play hard drives (costing $150) helped them install in more theatres. In the next few years network of IMAX screens grew from some 350 to 700.

Eventually, their perseverance and new business model of revenue share ( 20% to IMAX) paid off in 2009 with the release of Avatar in IMAX screens. IMAX made $250 million dollar in revenue. It was a win-win situation as theatres could charge premium on tickets for IMAX version and shared portion of that to IMAX. Currently IMAX is adding some 100-150 screens every year and has penetrated various geographies.

Today the stock price is hovering around $30 per share ( as compared to 55 cents few years ago) You can make an impactful change in the industry you are operating with and its reported revenue is close to $300 million in 2014.

You can make impactful change in the industry you are operating by remaining flexible on your business model and keep innovating. The company took several wrong turns before navigating into the right path. So my recommendation is to keep plan B and C handy to change over quickly

By the way, today in a normal theatre a movie ticket would cost you RS 100( $1.40 cents) and IMAX Rs 250 ( $4) and bottle of coke costs approx. Rs 12 (20 cents)  for 200 ml. Coke price increased by 60% over three decades whereas movie tickets increased three fold( all in dollar terms)  Who would have predicted this two decades ago.

Dessert

“Change your thoughts and you change your world” – Norman Vincent Peale

I promise that I will write more frequently in 2015 as compared to 2014. With that promise I bid good bye with my usual signature “Life is Good”.

PS: IMAX is thinking of coming out with affordable home theatre. Will this create an impact on the theatres? Take a guess.

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