IMAX to Build 75 Screens in China Over Three Years

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BEIJING -- IMAX will build 75 giant screens in Chinese movie theaters over the next three years with partner Wanda Cinemas, China’s largest theater chain, the companies said on Thursday, announcing a deal analysts familiar with their operations valued at nearly $100 million.

The deal makes Wanda the second largest operator of IMAX screens in the world.The move by NYSE-listed IMAX comes as China’s closely guarded media sector responds to directives from the top of the ruling one-party government to expand the nation’s cultural industries.

“China has set its cultural industries as pillar industries,” said Wang Jianlin, chairman of the Wanda Group, the real estate giant that owns the cinema chain. China’s centrally planned economy now spends only about 3 percent of its GDP on cultural development, less than half the world average, Wang said: “The agreement with IMAX will help China achieve its 12th five-year plan.”
 
Wanda Cinemas president Li Yaohan and IMAX CEO Richard Gelfond signed the deal in the gilt ballroom of a Wanda-owned luxury hotel to the sound of blasted snippets of the Star Wars theme.
 
The deal follows a decade of steady pressure from Hollywood and the World Trade Organization for China to allow greater foreign participation in its movie market, where growing consumer confidence boosted gross movie ticket sales 64 percent in 2010 to $1.5 billion.
 
Gelfond said IMAX’s gross box office revenue in China in 2010 was 286 million yuan ($44 million), ten times greater than gross revenues in China in 2009.
 
The IMAX-Wanda partnership will mean the companies operate theaters in China under a revenue sharing model for the first time, said Gelfond, declining to reveal the exact revenue split. Gelfond said IMAX in China makes “about half” the 12.5 percent it averages at the box office worldwide from the Hollywood blockbusters it tends to screen. 
 
From Chinese films in China -- such as Aftershock, the 2010 earthquake drama by Feng Xiaogang that briefly was the highest-grossing Chinese film ever made -- IMAX takes home about 12.5 percent, Gelfond said.
 
Gelfond said his company soon would establish IMAX China in Hong Kong as a wholly owned foreign enterprise. WOFEs, as these legal structures are known, help overseas companies recover revenue made in China through Hong Kong’s transparent financial system.
 
Currently IMAX operates in China from a Shanghai office but is considering opening a Beijing office, too, Gelfond said.
 
“Considering that our China business is about to be the size that all of IMAX was five years ago, we figure it’s time to set up the infrastructure for the expansion,” he said.
 
Growing from 35 IMAX screens in China today, including 10 operated by Wanda, the deal announced Thursday triples at signing the size of the IMAX network in China to 177 theaters -- both operating and under construction -- in the next four years.
 
Each new IMAX screen built with Wanda will cost 6-10 million yuan ($923,000-$1.5 million), Don Savant, Shanghai-based VP and GM of IMAX Asia Pacific told THR on the sidelines of a news conference after the deal signing. Earlier, in a speech, Wanda chairman Wang put the cost of each theater at about 20 million yuan.
 
James Marsh, an analyst who covers IMAX for U.S. investment bank Piper Jaffray, said the cost of new IMAX-Wanda construction would be held down by the volume of the deal. Wanda owns more than 70 cineplexes and 600 screens across China.
 
Marsh said that after much hard work and relationship building in China, IMAX “was putting its money where its mouth is,” noting that the deal was worth at least $50 million and that the $100 million deal value cited by The New York Times “could be an accurate number.”
 
Six months ago, IMAX signed a 15-screen deal with South Korean cinema chain CGV, offering its giant screen, projector and the sound system package at a discount to its $500,000 value, Gelfond said.
 
With Wanda, Gelfond said IMAX was giving away its equipment in exchange for a greater share of the box office in China. He said that Wanda meeting Beijing’s demands for transparent electronic ticket sales tracking systems had “boosted his confidence in the market.”
 
As IMAX expands in China, Gelfond said that among the first hires would be someone who understands the real estate market, in which developers such as Wanda are putting up thousands of shopping malls, each with a multiplex, at a rapid pace.  “[Real estate] in China is not just someone else’s risk. It’s ours,” Gelfond said.
 
Just as IMAX has become a must for Hollywood studios that reap a premium from IMAX ticket prices, the deal with Wanda will promote large format films among China’s filmmakers, whose works gross less on average at China’s box office than their Hollywood competitors. 
 
Aftershock, the first IMAX film not shot in English and the first of a three-movie deal with Huayi Brothers Pictures, grossed about $100 million, whereas Avatar grossed just over $200 million.
 
Greg Foster, chairman and president of IMAX Filmed Entertainment, said he hopes to help build on the initial success of the IMAX brand in China, especially with young filmgoers. “The young fan boys and fan girls of China are choosing to have their movie experience with us,” Foster said.
 
As to working with Chinese filmmakers wishing to use the IMAX camera, Foster said the company is “very selective” about which directors it will loan the “fewer than 10” IMAX cameras in operation around the world at any given time. 
 
“The list is short and includes names like Christopher Nolan, J.J. Abrams and a new filmmaker named Drew Fellman,” whose nature documentary Born to be Wild will likely get a summertime release in China, Foster said.
 
Gelfond said the next two Chinese films released by IMAX in China would be from the state-run China Film Group. They are Founding of a Party, China Film chairman Han Sanping’s celebration of the Chinese Communist Party, also due out this summer, and Hong Kong and Hollywood director John Woo’s Flying Tigers, due out in early 2012.
 
Asked what about a historical propaganda film lent itself to the IMAX giant screen, Gelfond said his company advised China Film how to shoot certain scenes to maximize their look on an IMAX screen, but noted that Founding of a Party would not be shot with an IMAX camera. “We are honoring our relationship,” he said.
 
Foster said IMAX, Woo and producer Terence Chang would decide together in the next month if an IMAX camera would be used to shoot Flying Tigers, a film that is expected to include aerial battle scenes in telling the story of the U.S. Army Air Corp pilots who helped China fight Japan in the 1930s-40s.
 
Gelfond said he was “not concerned” with China’s annual 20-title cap on imported films allowed to share in their own box office gross because the company works mostly with the blockbuster Hollywood imports China’s Film Bureau approves. He also said he believes that China will someday lift the import restriction because of pressure from the market for greater variety.
 
Leaving no room for doubt that the IMAX-Wanda deal was approved at the highest levels of China’s media industry bureaucracy, Mao Yu, deputy director of the State Administration of Radio Film and Television – a ministry level bureaucracy that answers directly to China’s cabinet, the State Council -- read aloud a from letter of congratulations from SARFT director Zhang Pimin:
 
“The growth of the movie industry in China has delivered great social benefits and strong economic returns. IMAX has made a significant contributions to China’s film industry,” Mao quoted Zhang as saying.
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