Dialogue: Richard Gelfond and Brad Wechsler

Imax's honchos are on a crusade to preserve the moviegoing experience.

Brad Wechsler and Richard Gelfond are co-chairmen and co-CEOs of Imax, having initiated purchase of the company in 1993, along with Wasserstein Perella Partners. Since then, the duo have worked tirelessly to expand the Imax theater chain around the world and champion it as a mainstream movie format that the major studios can use to their advantage. On the eve of Cinema Expo, the two spoke with The Hollywood Reporter's Debra Kaufman about why bigger is better.

The Hollywood Reporter: In the 14 years Imax has been under your leadership, what do you point to as your most significant achievements?
Brad Wechsler: We felt from the get-go that Imax provided the best out-of-home audiovisual experience. At the time it was in museums and science centers, and we believed it should have commercial applications. It took years for us to get movies like Sony's "Spider-Man 3" and (Warner Bros. Pictures' upcoming) "Harry Potter and the Order of the Phoenix," but this was our greatest achievement.
Richard Gelfond: Brad and I were watching the premiere of "Spider-Man 3" on the Imax (screen), and I tapped Brad on the leg and I said, "We've changed the way people view and experience entertainment." The Imax "Spider-Man 3" opened in 30 countries, and ultimately hundreds of thousands of people would see the movie in a different way because of the direction we took the company.

THR: You've made no secret that the company is on the market, and you've already turned down an offer. Do you believe the company is undervalued in the marketplace?
Gelfond: First, I should say that the company is not for sale. It was a year ago, but we took it off the market at that point. Questions of valuation are best left to hedge-fund manager and stockbrokers. We're interested in building a network. The closest analogy is an HBO; they signed up subscribers, and when it reached a critical mass, HBO became much more profitable. We plan to keep adding more theaters and good films so that we get to a size that we become more profitable each year. Valuation is a time perspective. If one has a long-term view, no question that we're undervalued, but most stock investors are focused on tomorrow.
Wechsler: What we're doing is in the process of building what we perceive to be long-term values. We see two substantial strategic prongs: first, our migration in the direction of joint ventures and, second, which I think is just as important, is our migration to digital. Within 18 months, we expect to have Imax digital projection -- 3-D digital projection -- on the market, consistent with what we consider our mandate: to provide the best audiovisual experience. Imax is not a broadly commercial experience; it's like flying first class, and that's what we intend to provide with digital as well.

THR: How has the financial model changed? Is there a new emphasis on joint ventures, and if so, how has it worked?
Gelfond: About two years ago, we set up a number of joint ventures with AMC on a test basis, and we got attractive returns of about 40%. We really believe in our business, the numbers are good, so we thought, why not grow the business faster by putting our own capital into some of the network growth and taking a bigger piece of the boxoffice? We started doing that more aggressively in January, and we've done two with Regal and one with Muvico Theaters, which opened just in time for "Spider-Man 3." In the early going, they're doing very nicely. I think we'll see more of that. There's a fair amount of interest around joint ventures, and we're in a number of discussions.
Wechsler: I like joint ventures for a couple of reasons. I think one of the best ways to measure a successful business is the ability to redeploy its own capital in high-rate-of-return businesses. So far, we have generated very high rates of return through the joint ventures. To me, that is the first hallmark of a growth business.

THR: Tell me about how the transition to digital is going. I understand you will have a test site in June.
Wechsler: We've done experiments with underlying technologies from Sony and Texas Instruments and used them in developing the prototype ourselves at Sheridan Park (Missisauga, Ontario). We put it up on a soundstage in Toronto and showed it to an audience. One thing that's always critical is to ask the question of the public: Does this deserve to be called an Imax experience? We got an overwhelming positive response. We then tore down the prototype in the warehouse, and within another six to eight weeks, we'll have rebuilt the second-generation projector and put it in a multiplex in Toronto, where we will start showing it to our studio and exhibition friends. We're using multiple light engines from Sony or TI. Getting them to work together and properly in the Imax geometry involves a new piece of technology that modulates the image properly between the two separate light engines. Imax owns it solely.

THR: How important is global expansion to the overall strategy?
Gelfond: Imax is really a worldwide phenomenon, not dependent on culture or politics. Imax is big in places you wouldn't necessarily think of. Mexico is one of our strongest markets, with 16 theaters open now and 21 expected to be opened by 2009. We have 11 theaters open now in China, and we expect that to rise to 28 by 2009, which will make it our second-strongest market after North America. We have theaters in Guatemala and Costa Rica. And we just opened in Buenos Aires. South America has lagged behind the rest of Latin America. One thing that's helped us gain momentum is the increased growth in the middle class in the emerging world. In China or Russia 10 years ago, they were worried about food and shelter, and now they're increasingly interested in entertainment. These countries are not vested in old infrastructure, so they're willing to get the new, best thing. And they seem to be attracted to the Imax experience for the same reasons people are in North America. It enhances the cinema experience.