BIG

MAKING
SCREENS
THE
THING

BIG

AN ANALYSIS OF THE
IVEY CASE IMAX:
LARGER THAN LIFE

RSM392 | STRATEGIC MANAGEMENT

2015-07-29

CONTENTS
EXECUTIVE SUMMARY | 1

THE RISKS: WHAT IF | 11

THE MATTER AT HAND | 2

Competitors Respond? | 11

ANALYSIS | 3
Examining IMAX in 2007 | 3

Theater Popularity Declines? | 11

Costs Exceed Projections? | 11

Examining the Environment in 2007| 4

KEY TAKEAWAYS | 12

A Look at Financials | 5

APPENDIX | 13

KEY ASSUMPTIONS | 6

Table 1: Figure Descriptions | 14

ROOT CAUSES | 6
ALTERNATIVES | 7
A GAME PLAN FOR IMAX | 9
COSTS AND RESULTS | 10

Explanation of Profit Projections | 14

EXECUTIVE
SUMMARY

IMAX is currently being outpaced by the film and

entertainment industry. Consumer preferences are rapidly

changing, and technological advancements are not slowing down. The most
promising opportunities lie with younger audiences who prefer Hollywood
blockbusters over educational films. The efforts of IMAX to reach new
demographics and expand into new film genres are evident, but movements
in this direction are slow. It is therefore critical that IMAXs management team
develop a strategy that targets areas with the highest potential for growth.
While continuing to invest in R&D in order to keep up with competitors,
IMAX should focus its attention on projecting 3D films, expanding further
into multiplex cinemas, and partnering with studios to produce more
Hollywood films. Through this strategy, IMAX can maintain its core purpose
of providing the ultimate viewing experience to those who watch films, while
simultaneously growing profits substantially in the coming years. It is in
managements best interests to postpone further discussions of acquisitions
until IMAX has sufficiently attempted to grow as an independent entity, so as
to not prematurely lose control of what is potentially a highly-profitable
company. If IMAX can successfully balance an awareness of its financial
capabilities with a desire to push its limits, the company can be a front-runner
in all of the industries in which it operates.

THE MATTER AT HAND

IMAXS MISSION: TO PROVIDE MOVIE-WATCHERS WITH THE
ULTIMATE VIEWING EXPERIENCE.
THE BIG QUESTION:

THE BIG ISSUE:

Industry changes are leaving IMAX
with an uncertain future.
o

Market Saturation

Identity

Consumer Preferences

Can IMAX survive as a niche

player while remaining an
independent entity?
Will exhibiting Hollywood
movies damage its
differentiation?

Home-viewing is growing in
popularity.
3D and high-quality experiences
are becoming the norm.

Should
IMAX continue
building its own theaters or
move towards multiplexes?

Movement into more

institutional settings is limited.
The current niche market is
small.

How can IMAX grow while

maintaining its core values?

Potential for Acquisition

Management must consider
whether IMAX is too small to
survive independently,
particularly as its financial
situation worsens.

o
o

Location

New Markets

Should IMAX explore other

genres to attract a younger
demographic?

ANALYSIS
EXAMINING IMAX IN 2007
IMAX demonstrates a clear potential for dramatic growth. Figure

presents an analysis of the company, organized into four components: management preferences,
organization, strategy, and capabilities. Critical areas of the analysis should be stressed: managements
goal of reaching new audiences while maintaining its unique brand image as an educational filmenhancer may be inconsistent, and their current growth strategy already deviates from this ideal.
Nonetheless, IMAX is a leader in technology and has been exploring methods by which it can cut costs
efficiently such efforts are crucial, since the company is deep in debt. IMAXs operations require
collaboration with many companies from various sectors, but it maintains tight control of its processes
by establishing close relationships with all business partners. Table 1 of the appendix provides
descriptions of each figure in greater detail.

MANAGEMENT PREFERENCES
- Reach a new audience while maintaining
unique brand image
FIGURE 1: Modified
Diamond-E
Framework

- Maximize cost efficiencies to reduce debt

- Differentiate through technology (large
format films)
- Tight control of distribution (maintain close
relationships with business partners to ensure
quality & loyalty)

ORGANIZATION

STRATEGY

- International public company

concentrated in North America with
declining market cap

- Large number of relationships with

outside companies (theaters, studios)

Target educated crowd and created

unique brand image by locating at
prestigious venues and institutions

- 2-pronged growth(Hollywood and

multiplexes) strategy while maintaining

- Entertainment, tech & distribution

company all at once

presence in institutions

- Share costs/revenues with theaters to

lower cap requirements and pay off debt

- Stock performance fluctuates based

on analyst opinions of future success

CAPABILITIES
- Highly-skilled staff
- Large R&D investments to develop 3D,
digital re-mastering, and lightweight tech
(holds patents on technologies)
- Cost efficiencies (low marketing costs,
avoids paying for Hollywood talent) and
access to outside funding

ANALYSIS
EXAMINING THE ENVIRONMENT IN 2007
The environment in which IMAX operates in highly complex and
constantly changing. Figure 2 summarizes the external situation that IMAX currently
faces. The key takeaways are as follows: IMAX must deal with highly elastic demand for its product,
while competing against rivals in three different industries. Moreover, the company must maintain its
position as a technological leader while adjusting its strategy to meet the demands of the consumer.
In the future, IMAX should expect to see higher expectations set by consumers with regards to the
theater experience, as well as a smaller consumer-base as home-viewing increases.

FIGURE 2: Modified PEST

Framework (PEST-C)

POLITICAL
- Different levels of industry
regulation depending on country
- No heavy regulation on IMAX
operations, but patents remain a
crucial factor in establishing a
competitive advantage

ECONOMIC

COMPETITIVE

- Sensitive to the actions of

studios and theater chains (i.e. the
oversupply of theaters in the
1990s dampened sales)

- Competing in 3 industries due to

complexity of operations

- Theater attendance fluctuates

greatly in response to economic
booms and busts

- Mid-market player with large

rivals (studios and theater chains)
- Tech leadership is crucial
- Barrier to entry: high fixed costs
(due to R&D and establishing core
technology)

SOCIAL

TECHNOLOGICAL

- Movement toward viewing films

at home (theater sales stagnating)

- Rapid technological
advancement rendering old
systems irrelevant

- Increasing emphasis on the

experience; customers willing to
pay a premium for quality

- High fixed costs allow for lower

variable costs in the long-run

- Religious concerns over certain

films

- 3D technology becoming
increasingly commonplace

Present (2009)

Theaters converting screens to 3D. Homeviewing grows in popularity. Theater sales

for major blockbuster films increase while
smaller films see theater revenues decline.

2030
2020

Customer expectations rise as technology advances.

Home-viewing mimics the current theater experience
on a smaller screen. 3D viewing is expected, and a
premium is no longer tolerated by customers.

ANALYSIS
A LOOK AT FINANCIALS
To say the least, IMAXs
financial statements may

FIGURE 3: Financial Trends

ignite fear.

40,000
Figure 3 depicts a
frightening drop in profits, and while this
should be a concern to management, it is
partially attributable to the recent capital
and R&D investments that have been made
it is highly likely that in the near future,
30,000
losses will decline as revenue and cost
efficiencies result from current investments.
Growth in R&D has been growing slowly,
while the amount of cash that the company
has on hand has declined drastically in the
past year, suggesting that there is limited
20,000
cash available to continue investing in
capital or new technologies.
Additionally, IMAXs current ratio has fallen
below 1 in the past year, indicating that
IMAX will be unable to pay off debts as they
10,000
come due. IMAXs failure to produce a
return on its investments should cause
management to consider whether more
profitable investments exist. All of IMAXs
top five revenue-producing films were
released before 2002, when IMAX films
0
were a new and mysterious concept this
suggests that IMAX must focus on entering
new markets and promoting its newest
technology, in order to boost excitement,
and (consequently) revenues.
If we examine the industry as a whole, we -10,000
see that theater box office revenues have
stagnated from 2002 2007, and total
overseas film revenues have consistently
exceeded domestic revenues. However,
domestic revenues for 10 major box office
films in 2007 accounted for 38% of total
revenues from those films, suggesting that -20,000
the US is one of the most appealing
markets for film entertainment companies.
Consumption of DVDs, which are a
generally a substitute for theater viewing,
has increased consistently over the years,
apart from most recently when DVD
-30,000
consumption declined by 5% in one year
(perhaps in response to the poor economic
situation).

FINANCIAL TRENDS ($ thousands)

2004

2005

2006

2007

Profits
Cash on Hand
R&D

KEY ASSUMPTIONS
The following key assumptions will be held when developing a
strategic plan for IMAX:
o

IMAXs patents are in effect for the foreseeable future.

This allows us to maintain our assertion that IMAX holds a competitive advantage over
rivals, and that strategic moves cannot be easily replicated.

New competitors face the same start-up costs that existing companies
have already faced.
This is a reasonable assumption, as there is no indication that fixed R&D or set-up
costs will decline significantly in the coming years.

Trends in consumer preferences and technological advances will persist

in the long-run.
This is the safe assumption to make it would be unwise to declare (for our
convenience) that consumers will stop watching movies at home, or that technological
developments will come to a sudden halt.

ROOT CAUSES
At the heart of IMAXs emerging challenges is its reluctance to
accept the changing nature of the industry.
If the entertainment industrys current situation were to persist for the next few decades, IMAX may prove to
be highly successful with its current strategy. Its past investments would begin to generate sales, so it would
see profits increase for years to come. Consumers would remain satisfied with the current experience.
This, however, is not the case.
IMAX is fixated on the niche market in which it currently operates, and is not directing its attention to the most
profitable opportunities it is therefore investing in net-loss growth projects. Its management team
overemphasizes the importance of IMAX maintaining a unique brand image, and fails to acknowledge that the
companys main advantage is that they can provide a viewing experience that no rival has the resources to
replicate. In the long-run, rivals will catch up, so IMAX must use the advantage they have now to reach out to
the largest consumer base possible . Remaining devoted to a niche market is no longer feasible.

ALTERNATIVES
IMAX faces many opportunities for growth. These must be prioritized due to limited resources.
o Proliferate 3D systems: 50% of IMAX theaters already use 3D technology, and while it is more costly,
advancements in technology could soon make 3D viewing the norm.. Customers will pay a premium for 3D
viewing, and IMAX must focus on 3D films in order to keep pace with the industry in a proactive manner. R&D
investments are now sunk costs, and the necessary technology has already been developed, so very little
additional investment needs to go towards developing the technology for the time being the focus should
instead be on increasing the number of IMAX theaters that utilize this technology. This option is unlikely to face
resistance from shareholders.

o Expand internationally: While doing so would be highly profitable, international considerations should be
postponed until IMAX has become profitable in North America and its existing locations. Global expansion is
not currently feasible given the companys depleting cash supply and high levels of debt. Only once IMAX is
financially stable should entrance into new countries be contemplated.

o Build more IMAX theaters: With theater revenues declining at a constant rate over the past two years,
building additional infrastructure would be unwise. A demand-driven approach to theater construction
would be more logical, and would garner more support from shareholders. While this option is well-aligned
with IMAXs initial mission, it would be using resources inefficiently, as there are more profitable ventures to
undertake. The profits generated by additional theaters would be unlikely to offset the additional costs.

o Move into more multiplexes: With theater sales stagnating and IMAX deep in debt, moving into

existing theaters is more feasible than creating IMAX theaters. Shareholders would react positively to such plans
for growth, and retrofitting costs would be covered by partners. Moreover, in exchange for system installation,
IMAX would profit not only from system sales, but also a percentage of ticket revenues. While the national
average revenue from IMAX theaters far exceeds the average theater, this is attributable to the fact that IMAX
theaters play solely IMAX films therefore, IMAX could likely experience the same revenues by installing the
same number of systems in various multiplexes as the number found in one IMAX theater. Additionally, IMAX
would focus on moving into the most popular theaters, as opposed to small, privately-owned ones.

o Focus on producing IMAX films: Considering its cash constraints, retrofitting films created by outside
partners as opposed to producing IMAX films would reduce expenses and improve IMAXs financial position.
Moreover, IMAX typically produces educational films (and therefore avoids paying for Hollywood talent),
whereas the most profitable genre that is well-aligned with the IMAX technology is arguably the action genre
(which often requires Hollywood talent to be successful). Stakeholders may not initially oppose the idea of
accelerating IMAX film production, but they may be disappointed in the resulting future profits. IMAX should
therefore strongly consider reducing its production of in-house films to cut costs.

o Move to Hollywood: Management is hesitant to move to Hollywood because of its fear of brand dilution,
but the fact of the matter is that IMAX has already moved into the Hollywood market, and no harm has resulted
from doing so. This is where the profits lie, and reformatting Hollywood films is less costly than producing new
ones. Partnerships can be established with both theaters and studios, and stakeholders are unlikely to be upset
by the decision since the movement into Hollywood has already begun with no resistance.

o Move to home entertainment: In its current market segment (large format films) IMAX faces no direct
competition, which is abundant in the home entertainment segment. While a move to home entertainment may
be necessary decades down the road when consumer preferences move away from theaters entirely, IMAX
should, for the time being, capitalize on its development of large format films. Co-CEO Gelfond has said himself
that the IMAX experience cannot be replicated at home. This would be a huge diversion from the companys
original purpose, and stakeholders are not yet ready for such a change (although they may be in the future an
example of such a drastic product change is Nintendo).

What follows is the quantitative grading of each alternative that was used to reach an objective decision. Figure 4
grades the possible alternatives on a 20-point scale. In order to avoid overexerting management and depleting
monetary resources, only the three highest-scoring alternatives were chosen. Alternatives are evaluated based on
their alignment with the companys mission, their potential profits, the feasibility of their implementation, and lastly,
since IMAX is a public company, their acceptance by shareholders. As was previously mentioned, these figures are
further explained in the appendix.
FIGURE 4: Strategy Evaluation Rubric

Alternative

Mission
Alignment

Profitability

Feasibility

Stakeholder
Reaction

TOTAL SCORE

Proliferate 3D
systems

17

Expand
internationally

13

Build more
IMAX theaters

14

Move into more

multiplexes

17

Focus on
producing
IMAX Films

15

Move to
Hollywood

16

Move to home
entertainment

13

In addition to implementing an effective strategy, key decisions must be made. Figure 5 outlines the decisions
that will influence IMAXs strategy, but it is worth discussing one decision in greater detail: should IMAX be
acquired? After due consideration, the answer is not yet. Without implementing an improved growth strategy,
management cannot determine if IMAX can succeed independently. If efforts to expand the company into new
markets prove to be unsuccessful, or resources deplete, then an acquisition should be considered. To resort to
acquisition discussions now would be premature, as IMAXs full potential as an independent entity has not yet
been realized. Additionally, IMAX has built lasting relationships with major players in technology, distribution, and
entertainment, which places the company in a strong position to succeed independently. Most importantly, IMAX
places great emphasis on sticking to its core mission this mission is far more likely to be compromised if IMAX
is controlled by a large multidimensional organization that is not solely focused on developing the IMAX brand.
Decision

Yes

Release movies
simultaneously
with regular
films?

No

Explanation
This decision may hinder sales of regular film viewings, but IMAX films have higher
profit margins. If the IMAX version of films are released after the regular version,
many viewers will be less inclined to see the IMAX version (as they will have already
watched the regular version) and thus the negative affect on total profits will be
worse, since it is in the filmmakers best interest to sell more IMAX tickets.

Develop other
forms of filmed
entertainment?

This does not use IMAXs differentiation (its large format screens) to its advantage,
since other filmed entertainment (i.e. TV) is viewed at home or on the internet.
IMAX is also greatly inexperienced when it comes to operating in this market.

Begin
discussing an
acquisition?

This would be premature. IMAX has not yet attempted to grow independently, and
until these attempts are made we cannot determine with certainty whether the
company is better off under the control of a larger parent.

FIGURE 5: Key Decision Table

A GAME PLAN FOR IMAX

Based on the previous examination of alternatives, IMAXs ideal

strategic plan can be summarized as follows:
First, IMAX should increase its production of 3D systems. Secondly, IMAX should rapidly expand into
multiplex theaters. Lastly, and perhaps most importantly, IMAX should fully embrace the idea of
moving into Hollywood. This plan will now be discussed in greater detail.
We can approach the development of a new strategic plan for IMAX by creating a multifaceted strategy. Figure
6 depicts the ideal strategy for IMAX with regards to 3 key components. In addition to these main
components, IMAX must continue with what has been successful in the past: broadcasting educational films in
institutional settings, investing in R&D, and searching for cost efficiencies (i.e. through partnerships). At the
end of 2 years, it is expected that IMAX will have transitioned to solely developing 3D/2D dual technology (as
opposed to 3D and 2D technology separately), and will have expanded its presence in multiplexes while
producing an increasing number of Hollywood films. To make such a plan financially feasible, IMAX must
temporarily cease production of IMAX theaters and the production of IMAX films, until the profitability of new
ventures can be assessed and compared to old practices. Promoting the future possibilities of the company in
order to increase market capitalization will also assist in financing new activities. Additionally, building
relationships with other firms is crucial, in order to share operational costs.
FIGURE 6: Strategic Plan Breakdown

Proliferate 3D
Systems

Present
Increase production of 3D
systems by 25% (33 additional
3D systems).

1 year
Cease production of 2D systems
and heavily promote 3D systems
to institutions and theater
chains. Research methods to
convert 2D systems to 3D.

2 years
Transition solely to 3D systems
that can also play 2D films.
Promote 3D conversion to
business partners that currently
use the 2D system.

Move Further into

Multiplexes

Move Further into

Hollywood

Present

Present

Use existing relationships with

theater chains to discuss further
expansion into multiplexes use
existing MPX technology to
convert regular theaters into
IMAX theaters (this will cut costs
and save theater space).

Use existing relationships with

studios to discuss further use of
IMAX technology to project
Hollywood films . Use past box
office success stories to induce
studios to simultaneously
release IMAX films.

1 year

1 year

Establish relationships with new,

high-end theater chains (i.e.
Cineplex) to increase IMAXs
presence in the movie theater
industry focus sales on 3D
systems and emphasize the
benefits.

Finalize agreement with Time

Warner to project its most
highly-anticipated films (i.e.
those with the highest profit
forecasts). Push for the
simultaneous release of IMAX
and regular films.

2 years

2 years

Postpone considerations of
creating additional IMAX
theaters until profitability in
multiplexes can be analyzed and
available cash increases.

Assess the relative profitability

of Hollywood and educational
films, then concentrate
resources on the more profitable
genre. Expand movie library by
10%.

COSTS AND
RESULTS

With this plan in effect, IMAX can expect big things. Within two years, IMAX will have
established new relationships with companies in the entertainment and distribution industry. By being
proactive and increasing the use of 3D technology as it grows in popularity, IMAX will develop
sustainable wealth for its stakeholders, and market capitalization will increase as IMAX is viewed as a
more appealing investment. Additionally, profits from 3D ticket sales allow the company to lower its
debt levels while avoiding further capital investments. IMAX will watch itself evolve from a niche
market provider into a major film entertainment company that appeals to all ages. Over two years, the
strategy will cost approximately $10 million to implement, which is incredibly cost efficient when
analyzed as a proportion of IMAXs current expenses. Costs to uphold the strategy in future years are
expected to remain constant at this figure ($10 million per two years, equating to $5 million per year).
Moreover, the projected revenues that will be achieved from this strategy eventually reach $130
million per year once the plan is fully implemented, which further verifies the assertion that this newlyimproved game plan will be worthwhile (the Explanation of Profit Projections in the Appendix
discusses how we arrived at these numbers). Such large differences between costs and revenues are
possible for IMAX because of its previous heavy investment in R&D and infrastructure in other
words, most of the necessary expenses have already been incurred. It is not radical to suggest that
such an aggressive expansion plan is necessary if IMAX wants any chance of paying off $160 million in
long-term debt. Figure 7 illustrates how IMAXs strategy will set the company up for success in the
future, even as technology continues to develop and customers begin demanding more.

FIGURE 7: Projected Timeline of Results

1 year

IMAX increases its North American

presence while meeting demand for 3D
viewing.

As revenues from Hollywood films and 3D

screenings increase, IMAX begins
accumulating cash and is in a position to
consider international expansion.

5 years

2020

North American theater revenues may decline

drastically, but due to continual investments in R&D,
IMAX will be able to begin production of an
enhanced home-viewing experience.

10

THE RISKS: WHAT IF

COMPETITORS
RESPOND?
KEEP THE CURRENT
PACE. IMAX is already a

front-runner in developing
entertainment systems. It will
take time for competitors to
accumulate the resources
necessary for such
development, and even more
time to actually develop these
new technologies. Moreover,
IMAX has already established
firm relationships with leading
studios and theater chains.
Nonetheless, IMAX must remain
one step ahead of its rivals to
prevent itself from losing
market relevance. One strategy
is to allocate a portion of its
management staff to
forecasting future consumer
preferences, and a portion of its
R&D staff to brainstorming
innovative new technologies.
With this method, IMAX will
never fall behind.

THEATER
POPULARITY
DECLINES?
FOLLOW THE
CUSTOMERS HOME.

Supposing that theaters become

irrelevant in the long-run, IMAX
can shift to producing home
technology. With lightweight
technology already developed,
creating home systems with an
enhanced visual component is
within the companys reach, albeit
a deviation from the companys
original large format focus. If it is
specifically 3D sales that are
declining due to consumers
reluctance to pay a premium,
IMAX can use its 3D theaters to
project 2D films temporarily, while
simultaneously undergoing
marketing initiatives to further
promote the 3D technology.
Thanks to the companys past
investments in R&D, 3D systems
can also play 2D films, and thus
this strategy is possible.

COSTS EXCEED
PROJECTIONS?
GO DIGITAL. While it is true
that implementing a digital
format for IMAX screens will
increase upfront costs, the
resulting decrease in operational
costs in the following years will
more than offset the initial
investment. The profits resulting
from the digital switch will
compensate for the costs that
were in excess of what was
forecasted, as well as the costs to
produce that digital technology.
A portion of R&D staff should be
allocated to improving the
companys digital technology.
Another mitigation approach is
to focus on projecting films
produced by large studios, as
opposed to independent
filmmakers or films created inhouse. Promotion costs will be
notably lower, since the studios
will have incentive to take on
these costs themselves. Lastly,
IMAX should constantly assess its
in-progress projects in order to
determine which projects are
profitable, and which should be
abandoned to avoid incurring
additional losses.

11

KEY TAKEAWAYS
It is time for IMAX to go big.

In a technologicallyadvanced industry with dynamic consumer preferences,

IMAX can no longer afford to remain within its comfort zone.
Continuous investment in R&D is necessary, but not
sufficient; technological progress will only benefit the
company if there is a large enough customer base to get
excited by such advancements in the movie-watching
experience. Therefore, IMAX must expand beyond the
institutional setting, and into the general theater setting.
Some may view the proposed strategy as a diversion from
IMAXs mission after all, the companys focus has been to
enhance the viewing experience of the educated minds. But
is it out of the question for IMAX to grow and include a new
consumer base? Is this a drift from the companys unique
vision, or is it rather a vision expansion? IMAXs ultimate
purpose is to enhance the movie-goers viewing experience,
and with this in mind, no one can argue that the proposed
strategy is misaligned with the organization. Moreover, IMAX
has already started the transition into Hollywood and
multiplexes, and it has seen no dilution in its brand image
the proposed strategic game plan is simply accelerating the
growth strategy that is already in effect. Failure to speed up
the process could result in IMAXs financial downfall. In order
to become an entertainment leader, IMAX must continuously
push its limits. It must actively demonstrate its belief that
bigger is better.

12

APPENDIX

13

TABLE 1: DESCRIPTION
OF FIGURES
Figure

Description

1: Modified DiamondE Framework

This is essentially the traditional Diamond-E framework, but the Environment component
has been removed, in order to allow for a more comprehensive environmental analysis using
the PEST-C framework (refer to Figure 2).

2: Modified PEST
Framework (PEST-C)

3: Financial Trends
4: Strategy Evaluation
Rubric

This is similar to the traditional PEST analysis, but Environmental analysis has been replaced
by Economic analysis to make this framework more suited to the theater industry.
Additionally, another element has been added Competitive analysis to account for the
intense competition within the industry. Lastly, a forecasting component has been added to
the bottom of the framework to reflect the dynamic nature of the industry, and to predict
the future direction that the industry is headed.
This chart uses case data to illustrate trends in IMAXs financial performance.
This figure provides a method by which alternative strategies can be selected using 4 criteria,
each ranked on a scale from 0-5 (5 is the most positive grade, while 0 is the most negative).
Equal weightings were given to each criteria, as they were all deemed equally important.

6: Strategic Plan
Breakdown

This figure addresses decisions that must be made. These decisions are not significant
enough to be considered components of the strategy on their own, or they are too futureoriented to be considered part of IMAXs current strategy.
This figure is largely self-explanatory. It breaks down IMAXs ideal strategy using a threepronged approach. Each component of the strategy is divided into strategic actions that
should be taken now, in a years time, and in 2 years time.

7: Projected Timeline
of Results

Another fairly straightforward figure this timeline shows the results that IMAX can expect
after 1 year, 5 years, and in 2020 the year 2020 has been chosen so that it be compared to
our forecasts of where the industry will be at that time. (refer to Figure 2)

5: Key Decision Table

EXPLANATION OF
PROFIT PROJECTIONS
The breakdown of costs and expected profits from the recommended strategy is as follows note that numbers have been
rounded for simpler calculations:

COSTS: 260 theaters currently use IMAX technology, and 50% of those are 3D (130 theaters). To increase the number of 3D
systems in use by 25%, another 33 3D systems will need to be developed, costing $500,000 each (assuming that they are all
added to multiplexes). This totals $1.65 million.
If IMAX wants to expand its movie library by 10% in the next 2 years through conversion of Hollywood films, they must
convert 23 new movies. Conversion costs are $45,000 per film, resulting in additional costs of $1.04 million.
For a conservative estimate, we will add an additional $4 million per year to R&D , and $4 million per year to expanding in
institutional settings, resulting in total costs of under $10 million.

PROFITS: We assume that IMAX succeeds in expanding its film library by 23 films, and consumers pay a $4 premium (an

estimate within the range stated in the case) on top of the average ticket price of $7. According to the case, 603 movies wer e
released in the US, resulting in 1.4 billion movie theater attendances. This means that on average, each film had 2,320,000
attendances we will use 2 million as a more conservative estimate. Assuming that the films partnered with IMAX attract the
same attendance levels, and that 10% of these attendees choose the 3D viewing(a fair number based on IMAXs past reports),
IMAX can expect ticket sales of 23 x $11 x 2,000,000 = approximately $506 million. If IMAX gets a 25% share of ticket revenue
, they will be gaining almost $127 million per year in profits from this investment.

14