IMAX: Larger Than Life Case Study

IMAX is known globally for its large-format films. Their first film debuted in Fuji Pavilion in Osaka, Japan in 1970. Since then the company has grown tremendously. IMAX went public in 1994, and if now available in 40 different countries. IMAX started with a focus on educational films in prestigious settings such as museums, science centers, aquariums, and other institutions. In recent years, IMAX has needed to make decisions regarding whether or not they should attempt to diversify and extend their reach beyond the educational niche market. Many were concerned this move would diminish their legitimacy as a brand. However, the revenue potential in such a narrow market was clearly limiting. IMAX has utilized both business level and corporate level strategies to achieve their business goals. 

IMAX revenues come from three sources; film production, theater operations, and system leasing. The first of these, film production, maybe what IMAX is most highly associated with. They started in the business making large-format films such as Avatar that were roughly ten times larger than traditional theater films. IMAX spent a great deal of time and money in research and development to create the systems that create the films, as well as the cameras, the projectors, and all the associated equipment. Although the initial investment in the research and development of equipment was high, the cost of producing films is relatively low when compared to other film production companies. Co-CEO, Gelford, described their advantage best in an interview with CNN, “IMAX is also a brand, so we don’t have to pay the same kind of talent that Hollywood has to pay, which is really a huge percentage of the costs. Once you take those costs down and you look at just making the film with the world around you as the talent, you get into much more manageable budget ranges. A typical two-dimensional film at IMAX is about $5 million; a typical 3D film at IMAX is about $10 million” (Michael, 1998, para. 9). Even at the time, Gelford made this statement, his figures were a fraction of the cost of producing a Hollywood movie. The threat of new entrants in IMAX film production is low because they own the technology. It would require a great deal of time and money for another company to develop similar technology. 

Similarly to their film production, there is a low risk of new entrants in their theater operations as well. This is also due to the fact IMAX is a brand. They have secured their position within their niche market of theater operations within museums, science centers, and institutions. In 2007, IMAX reinvested five percent of its revenue into research and development. With this effort, they successfully developed 3D cameras and projection systems that could produce a realistic 3D image. IMAX owns the rights to its systems, which enables them to decide where and how it will be used. This has also allowed them to broaden their film production and theater operations. 

Their third source of revenue comes from system leasing. In regards to their IMAX film systems and 3D projection systems, there is a low-level threat of new entrants. IMAX created partnerships with AMC and Regal Cinemas to retrofit theaters, so they can offer IMAX films (Oestricher, 2003). Research has found that the market for systems increases based on the software offered through that system (Binken & Stremersch, 2009). The IMAX experience is a unique one, and it has been determined that consumers are willing to pay more to see their favorite movies in the IMAX format. When The Matrix Reloaded was released in IMAX format, it generated $11.7 million; it was determined that 90 percent of those that went had already seen the movie in theaters (Lieberman, 2002). They experienced similar success with other films they re-released. This demonstrates that the product makes the system profitable and designed. 

The business-level strategy IMAX has employed is differentiation. Lumpkin and Dess (2009), describe differentiation as the uniqueness perceived by the customer. IMAX offers a unique movie experience. Despite some criticism, it is likely they will be able to maintain their differentiation while still moving forward with the new plan to integrate into mainstream movie theaters and offer Hollywood films in IMAX format. This will work because the IMAX format is still perceived as unique to viewers. Additionally, IMAX is not currently planning to end their production of educational films played in museums, science centers, and other institutions, they are simply expanding their offerings and locations. The second industry-wide business-level strategy discussed by Lempkin and Dess (2009) is a low cost position. This is a strategy IMAX should not pursue. Despite the drive towards lower prices throughout society, the movie industry is still strong, and IMAX is perceived as ‘better’ than regular format. In order to maintain the image of ‘better’, they need to maintain their current price structure. 

Coming from a resource-based view of firms, IMAX possesses a number of resources that provide a sustained competitive advantage. Two of these resources are the research and patents. IMAX has already invested millions of dollars and years of research into the development of their systems. The years of research and experience with what works and what does not work give IMAX an advantage over any potential new entrants. Additionally, IMAX has multiple patents covering its systems and products. A new entrant would not only need to make a great investment to develop a system, but they would need to develop a system that is unique from IMAX’s system but produces the same results. Both of these resources can be evaluated and justified with VIRN.

VIN is an acronym used to describe the factors that give resource values as providing a sustained competitive advantage. VIRN stands for valuable, rare, imperfectly imitable, and non-substitutable. The years of research can be justified using VIRN. The knowledge gained through the research is valuable because it has created the IMAX system. It is rare because no other company has it. It is imperfectly imitable because it would take years of additional research and millions of dollars for other companies to figure out what the IMAX Company has already discovered. It is non-substitutable because there is no substitute for quality research. All great technology started with dedicated and quality research. The VIRN of research is nearly always justified. 

The patents can also be justified with VIRN. Patents are valuable because they protect the ideas, research, and discoveries made by IMAX over the years. Although the systems of patents are not, in themselves, rare, they provide IMAX with a rare product because no one else can use their technology to develop a similar system.  The patents make IMAX systems imperfectly imitable. Finally, the patents make the IMAX products non-substitutable. If consumers want the IMAX movie experience, they have to go to an IMAX. Essentially, the patents are what protect the differentiation of IMAX, which is what makes it a successful company. If all production companies could create their films in regular and large format, IMAX productions would be unneeded. 

IMAX has pursued a two-prong growth plan as part of its corporate-level strategy. Their two-pronged plan was to move IMAX systems into community movie theaters and to expand their film offerings to include Hollywood films. This is an example of a diversification strategy (Lumpkin & Dess, 2009). The advantages of moving into community movie theaters are that they will expand their audience; making it easier for people to see IMAX films. The possible disadvantage of this is that is taken away from the IMAX image, which includes specialized theaters in institutional settings, such as museums and aquariums. IMAX does not want to diminish their brand image by moving too far from where they originated. The advantage of offering Hollywood films such as Kung Fu Panda, again, is expanding their audience. There may be more people willing to pay a higher price to see The Matrix Unloaded in IMAX than Everest in IMAX. Once again, the disadvantage is losing its brand image of offering educational films. Although the two strategies are very different, the advantages and disadvantages of each are the same. 

Positive feedback loops are created when one change directly affects another change, which creates a circular development. For example, if IMAX offers more Hollywood movies in IMAX format at local theaters, people will pay more to go watch them. If people pay more to go see movies in MAX format, the theater will want to show more of them. If the theaters want to show more movies in IMAX format, then IMAX will offer more Hollywood movies in local theaters. As long as each of these factors stays in place, this positive feedback loop will be the key to IMAX’s long term success with their new diversification strategies. 

IMAX has successful moved from a narrow niche market to a greater community market by moving to local theaters and offering select Hollywood movies in IMAX format. They have done this while maintaining their niche market. They have accomplished this through a series of proven strategies at both the business level and the corporate level. IMAX has created a situation where they have a sustained competitive advantage, and as long as they maintain their patents and continue their research and development moving forward, they will maintain their competitive advantage. Diversifying while still maintaining differentiation is a difficult task and many within the business criticized IMAX’s goals of accomplishing this. Staying loyal to one’s brand is an important marketing tool within the business, and many felt that differentiating would result in customers feeling IMAX betrayed their brand.  

References

Binken, J., & Stremersch, S. (2009). The Effect of Superstar Software on Hardware Sales in System Markets. Journal of Marketing, 73, 88-104.

Dress, G., & Lumpkin, T. (2009). Strategic Management: Creating Competitive Advantages, 5th Edition. New York: McGraw-Hill.

Lieberman, D. (2002, December 16). USATODAY.com - Imax supersizes its plans for future flicks. USA TODAY: Latest World and US News  - USATODAY.com. Retrieved February 26, 2013, from http://usatoday30.usatoday.com/tech/news/techinnovations/2002-12-16-IMAX_x.htm

Michael, D. (1998, November 6).  CNN - IMAX knocking competition down to size - November 6, 1998. CNN.com - Breaking News, U.S., World, Weather, Entertainment & Video News. Retrieved February 26, 2013, from http://www.cnn.com/SHOWBIZ/Movies/9811/06/imax/index.html?iref=newssearch

Oestricher, D. (2003, June 18). IMAX hopes for a big run with Matrix. The Wall Street Journal, p. b5.