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Executives

Rich Gelfond - Chief Executive Officer

Analysts

Drew Borst - Goldman Sachs

IMAX Corporation (IMAX) Goldman Sachs Communacopia, MKM Partners Entertainment & Leisure Conferences Transcript September 25, 2013 10:30 AM ET

Drew Borst - Goldman Sachs

Our next session, I am pleased to Richard -- welcome Rich Gelfond, Chief Executive Officer of IMAX Corp. Rich has been CEO of IMAX since May ’96. He has been on the Board since ’94. So thank you very much for being here today Rich.

Maybe you could start by talking a little bit kind of how IMAX has progressed. It’s a fascinating story to me. The company has been around I believe 45 years. But its model, business model has really changed pretty considerably over the past five or so?

Rich Gelfond

It’s actually changed considerably probably over 10 to -- it seems quicker than maybe it was. But the first part, I will go very quickly is that IMAX used to be in standalone, museums and science centers, and a couple of high profile theaters, and IMAX made movies, films, live its own cameras, the shorthand is bears, whales and seals kinds of movies.

And then about a decade ago, we figured out how to take a lot of costs out of both the film making side and the theater side. So instead of having to go on the standalone building, it got fit into a multiplex, which obviously, shared costs and shared personnel, labor, lowered a lot of costs.

On the film making side, instead of having use our cameras and having to make your own films, our directors, we figured out a process whereby we would take Hollywood films and convert them through a proprietary process we had called DMR into IMAX film.

So what that means is when you go to an IMAX theater now and you see Gravity, which is opening next week. Instead of being filmed with IMAX cameras necessarily we have algorithms that blow the movie up. So if you took a regular movie and you put it on a -- in an IMAX projector it would look really lousy, because there wouldn’t be enough data in it and you blew it up.

So IMAX is a hardware and a software solution. So we don’t just have special projection equipment but it’s literally a different movie that’s been manipulated to make the quality sufficient to be seen on a big screen and in the way we show it. So that was sort of the first -- going back 10 years.

Then in the last five years or so, there have been two dramatic changes. One was we converted from film to digital. So an IMAX film frame is about this big to make one spool, so think of one show showing at LinkedIn Square in New York that film platter cost $40,000 of piece.

So when Disney or Warner Bros. was releasing one movie, every one of those movies, every one of those prints cost $40,000. And if you open today and take film across the world that was an awful lot of money and you had to play the film for a very long time to recoup that cost.

By going digital, that same form of spool now cost about $100 or $150. So it essentially wiped away a huge cost of doing business in IMAX and it -- a lot of things happened around that.

One, instead of doing six movies a year, because that all you could afford, we now do about 30 movies a year, if the film doesn’t work, you could change it out. You didn’t need a projectionist anymore. The same kind of young person who is pressing the buttons on and the other ones could that, so that’s dramatically changed our business.

And then the second dramatic changed our business is in, in certain territories, we went to a joint revenue share model away from our sales model. So, again, pre-2008, if you were an exhibitor and you want to go into the IMAX business, you had to give us $1.2 million upfront, you paid us a minimum fee and you paid us a royalty. But it was a high upfront cost. Now if you want to go into IMAX business with exception of a number of territories. You basically don’t pay us anything. You give us the box and we get roughly 20% of the gross box office on a quarterly basis paid in.

So one other thing I should just leave it at is the business model which logically flows from there. So we have two revenue streams. One is this 20% we get from the exhibitors or in certain countries. It’s the $1.2 million which is a 50% gross margin. And the second is from the studios, we get 12.5% at the box office.

So, again, just because its on my mind, it’s opening next week, when Gravity opens with Warner Bros. we get 12.5% of the box office from Warner Bros. on whatever the film does in IMAX theater and we also get roughly 20% of our joint venture theaters and then a one-time margin and a small royalty from the theaters that were open.

We are summarizing it we get roughly a third of the box office. Now, obviously, we have capital costs and putting up the equipment and marketing costs and things like that, but it’s a different business and either the movie making business or the exhibition business.

Drew Borst - Goldman Sachs

Yeah. And maybe kind of extending from your comment about the business model? Could you talk a little bit about the margins of the business, sort of the cost base seems relatively fixed? So how do you think about kind of the margins going forward?

Rich Gelfond

Well, as you do more box office, since the cost structure is relatively fixed and I think this year we gave guidance of like 5% to 8% growth in our SG&A and as your network grows and you add theaters, obviously, your revenues grow, and they should be highly leveraged revenues.

Now there are -- there is some noise in there at times and like this year some of the noise has been we are spending a fair amount on R&D, because we are upgrading from our existing digital system to a laser-based system.

Now what that means is for very large screens like the one at LinkedIn Square existing technology doesn’t allow you to light that whole screen. Laser technology enables you to do that and it will enable us to build bigger and bigger and bigger IMAX theaters and overtime provide better and better experiences for the audience. Because we haven't yet replaced those bigger theaters from film to digital or some of them -- some of the noise right now is also you’re still paying some of those film prints probably about 40 of them, something like that. So that hasn’t been wiped away yet. So it’s extremely leverageable but subject to some of the noise in the short run.

Drew Borst - Goldman Sachs

Yeah. And you mentioned laser, I assumed that’s one of, kind of, your key priorities but maybe you could give us a couple of other two or three, like things, that you are very focused on through the next kind of couple of years to kind of drive this business to the next level?

Rich Gelfond

Okay. As I said laser is definitely one of them because not only will it light the bigger screens but it will create more differentiation between IMAX and other technologies. So laser is way brighter and even the brightest film projector today. And I should mention because 3D is obviously a separate issue. I don’t know if you’re going to get to that but it’s in somewhat of a decline but that doesn’t matter to IMAX.

We always say whether its 2D or 3D, what matters is IMAX. And there is not really much differentiation in our pricing of 2D or 3D. And some of our most successful movies have been 2D movies. But the brightness issue especially in 3D is remarkably different because you are obviously wearing glasses that take away a lot of the color. Really pops will be better contrasted. So that’s one of our priorities.

Another one of our major priorities has continued differentiation. So this year, The Hunger Games, all the film -- all of the content shot in the arena is done with IMAX's cameras which although we can convert and I talked about that before. With the cameras, you get a different aspect ratio which is more vertical rather than the traditional one which is more letterbox and that’s increasingly becoming interesting to filmmakers.

So Chris Nolan is shooting Interstellar that is releasing next year. A lot of it -- probably he did The Dark Knight and The Dark Knight Rises with IMAX cameras and Interstellar, he is probably using even more. Michael Bay is using digital camera for Transformers 4. And he's really psyched about it. He is going to shoot 15 minutes in the turn that he is doing a lot more than that.

We’re talking to J.J. Abrams. They are doing test now about next Star Wars being used with probably IMAX cameras. But there is all kinds of differentiation things. So you could use our cameras. You could use other cameras but still more to our aspect ratio.

So there is a film coming out in China this Saturday called the Young Detective Dee by Director called Tsui Hark. This is the first time in China, they’ve ever used a different aspect ratio. So getting instead of being letterbox and you go with the IMAX, you get more of the IMAX experience because it’s vertical.

We’re operating our sound system. We’re always working on things like that. Our philosophy is really to always get better. So that would be a differentiation. And then our third major goal, I’d say which is probably the first one is to increase our global footprint.

So we’ve done an extremely good job with that. We’re in 54 countries right now. We used to be really focused on the domestic market but just anecdotally to give people a sense. So we have about 330 theaters open in the U.S. right now, some in backlog to get to around 400.

In China, we have 115 theaters. Commercial theaters are open right now. And our backlog is up to 400. So the Chinese market will be as big as the North American market as that backlog builds itself out. We have like 40 theaters in Russia. In the U.K., we had eight theaters two or three years ago, now including the backlog it’s around 30, same sort of numbers in Canada.

So if you think of the business model which we talked about at the beginning, it's really to have this relatively fixed cost structure and to grow out the network on a global basis. And in a way, it’s similar. If you think about in HBO that has a fixed cost of content and that it increases its subscriber base, it’s a model kind of analogous to that. And then there are another -- there are a number of other priorities onto that but if I had to pick three, those would be the three.

Drew Borst - Goldman Sachs

It’s a great summary.

Rich Gelfond

Sorry to interrupt. One other thing but it’s premature. I don’t like giving half a story but I don’t want to surprise people either is our brand is so strong like in China we have 95% brand awareness in the U.S. and our revenue base is fairly low. We’re always looking for places we could migrate our brand into. And you know, I’m not going to do it unless it’s a high ROI business unless the capital need is sort of quantifiable. I’m not going to bet the forum on it but that also an internal priorities looking at places where we can leverage our brand.

Drew Borst - Goldman Sachs

As you described today and then also on recent earnings call, you kind of talked about there are three constituents in your business. You have the exhibitors, you have the studios and then you have the consumers. And I think that’s a useful way to kind of approach it. So I’m going to ask a couple of question or so with the exhibitors and we’re kind of work through the other two.

But with the exhibitors, you talked about how there are two business models or two ways that the exhibitors can pay you. There is the JV revenue sharing model or there is the outright sale. How do you approach that in terms of making the decision of whether you are going to JV or the outright sale or is it more driven by the exhibiting themselves, its really their call, like how does that work?

Rich Gelfond

They are most completely driven by us. I mean, we look it at as an investment, not really as revenue sore in making the calculation. So the question for us is the JV a good investment. And that will depend on things like how successful is the screen, how much do we have faith in the exhibitor, when you look on a worldwide basis, how transparent is the reporting in that territory, what’s the rule on that territory. And certain places we started by only doing sales, China being a good example because we didn’t know the market that well.

But once we got comfortable with the market and once we got comfortable with who are partners were, we transition to JV overtime. There are certain countries like India, like Russia, like certain places in Latin America where we’re just not comfortable doing sales and instead doing JV’s, because we just don’t count on the fact that we’re going to get transparency rule or get our money out.

As a matter of fact, anecdotally we recently -- basically walked away from a deal in Russia for five theatres because the client insisted on doing a joint venture in Russia. And I mean giving the transparency there and given issues of the court system and everything else, I mean that’s the last place that they want to invest money.

So that was our choice to walk away but it’s almost solely within our discussion with one exception. There are places like in Singapore where we really wanted the joint venture but its relatively small market. And there is a location on Orchard Road which is incredible. So we decided there to sell that. That’s an example where the client resisted that business but it’s almost always actually.

Drew Borst - Goldman Sachs

They had some exhibitors that they follow position they prefer the JV right because there is no capital upfront or less capital -- I should say no capital but it’s more affordable for them?

Rich Gelfond

And they like the incentives being alined.

Drew Borst - Goldman Sachs

Okay.

Rich Gelfond

They like us, when they do well we do well. On a risk-reward basis, they are happy to share their award as long as we‘re sharing the risk.

Drew Borst - Goldman Sachs

Are the financial returns to you higher in the JV model in the sale. I know it’s kind of early and these are sort of 10 year deals…

Rich Gelfond

Well, in fact, we started the first ones about five years ago. So we do have enough data. The answers in general, yes. And its recurring cash flow and our IRRs have been somewhere in the 60% range for this JV’s that we’ve invested in. So obviously that’s quite attractive and quite happy about it, but it also comes back to your ability to pick the right locations -- not all that different and picking stocks being in the real estate business.

But the good news is when we pick locations, most of them are existing boxes and they are retrofits. So if multiplex is doing $10 million a year and we go in there, we’ve a very good idea of what we’re going do in advance. So, in general, that’s very well for us.

Drew Borst - Goldman Sachs

And so you -- could you talk a little bit, how do you segment the market in terms of, you know, you look at the globe. And I think you’ve talked about 1700 sort of opportunities or markets globally. How do you kind of arrive at that number, how do you think about that?

Rich Gelfond

What we do is we divide the world into film zones and we grant exclusivity to our theater. So here in New York City on 42nd Street, we have an AMC theater that’s in the middle of the box.

There is a Regal theater across the street. Now we would love to do it in the Regal theater also, but our business practices is that the first one in basically gets exclusivity for radius which is $20 million film zone, meaning that, that zone does $20 million.

So the 1700 was derived from -- we looked around the world, we did an analysis of what the film zones were. We also look at obviously natural boundaries, right. There’s an ocean or there’s mountain range and that’s how we came up with the 1700 number.

But every years that numbers are moving target because countries are developing, currencies are fluctuating. So to give you one example and the last part, I want to underline that this -- the last part is anecdotal. But in China, we identified the market to be 90 theatres. Then we raised it to around 450 and now we have contracts for up to 400 in that territory. Fine, right now -- the reason I say up to is something like 320 or guaranteed but one of them has an option to get up to 400.

But I just got back from China yesterday and -- Monday, I am sorry, the days get confused. But I -- there is a lot of -- even though we have basically filled the bucket in China there is a lot of activity going on. And I ask my China team, and again please, this is anecdotal, it hasn’t been done scientifically but I said we have the market at 400. We are at 400, what do you think it is? And they said, we think it’s probably 600 now. But we haven’t done the work yet but that’s just to give you a sense that the number moved.

Drew Borst - Goldman Sachs

And that’s completely that your discretion there is no -- in the contracts that you have signed. So the backlog -- are there protections in the contract that prevent you from changing the market size or it doesn’t work that way?

Rich Gelfond

No. That’s just in the contract there is that exclusivity zones, right. But the question is like in a place like Beijing I think we have eight theaters. In L.A., we have 21 theaters. So as the economy develops and as disposable income increases obviously the number of markets goes up.

Drew Borst - Goldman Sachs

So you can change -- you can change the size of the zone?

Rich Gelfond

Not the exclusivity…

Drew Borst - Goldman Sachs

No, no, not the exclusivity but the parameters of the zone change.

Rich Gelfond

Yes. Exactly.

Drew Borst - Goldman Sachs

It shrinks.

Rich Gelfond

Yeah. More become -- $12 million.

Drew Borst - Goldman Sachs

Because the box office is growing bigger.

Rich Gelfond

Right.

Drew Borst - Goldman Sachs

Okay. That’s a good segue into sort of China’s a huge part of your backlog and how long do you think it will take to sort of roll out those theaters. And can you talk about what you are seeing in terms of the current market there, in terms like construction of new theater builds?

Rich Gelfond

So as I said, we have a 115-ish open, roughly another 230 (inaudible) backlog and the rest is subject to the options, most of those (inaudible).

Drew Borst - Goldman Sachs

I think your mike is cut off.

Rich Gelfond

Thank you. Is it on now?

Drew Borst - Goldman Sachs

Yeah. Sorry for the technical difficulty. Mike cut out. So you were talking about China.

Rich Gelfond

So as I said, a lot of the backlog is with either Wanda or CJ. Wanda has a concept called Wanda Plazas which are big kind of entertainment shopping malls. We are in, I think I may have lost count but we are in 49 or 51 of those and almost all of those going forward over the next several years are on the drawing board or actively under construction right now.

So, they need the IMAX theaters to go in there and in fact one of the impetus for this big deal we just completed is that they exceeded their rollout schedule in phase 1 and they kind of need it to catch up. So the next 40, I think are going in under in the next two years. And I think around 20 a year for them makes sense.

And then CJ also, as I said, they are the largest entertainment conglomerate in Korea. And they have been starting to roll them out in a progressive pace. So, I know a lot of people who haven’t been to China, I was laughing as I was with my China team walking through a mall where one of my female colleague pointed out the price of shoes was 50% higher than it was in New York City.

And it was filled with people and they were talking about the stories about ghost towns, but you know the -- I was in Qingdao, I was in Beijing and Shanghai and they certainly didn’t look like ghost towns for me. I mean, they were brimming and there were construction cranes everywhere. We had talked before you mentioned, you might talk about it but Wanda announced a RMB 50 billion studio they are building. So again I can’t talk five years out, but certainly today China felt really solid to me.

Drew Borst - Goldman Sachs

Yeah. Wanda who is your biggest partner in China has some -- seems like they have some pretty big ambitions for film production and basically announced over the weekend, they sort of a Hollywood. They want to build sort of Hollywood of China in a city over there. And I figure which Qingdao. But it does seem like the backlog is really dependent on new construction. Is that pretty much the case?

Rich Gelfond

Well in the world that is in this, certainly we have lots of retrofits in China, a lot of it is on new construction but some of them is retrofit, but most of it is new construction.

Drew Borst - Goldman Sachs

You know aside from China which is a huge opportunity and you really got a lot in the backlog what other regions seems most promising to you?

Rich Gelfond

Surprisingly because China is the newest, it would really be part of the oldest which would be Western Europe. We have been slow to penetrate Western Europe for a number of reasons. And I think most of them have to do with our own perspective on the world and I will come back to that plus personnel we had in Europe until a couple of years ago.

In terms of perspective, I think we were a North American Company thinking like a North American company. So release dates on films are different all over the world, although they can -- we in the U.K. tend to be more similar. But they are different and we started a couple of years ago to think much more globally than we did before.

So we have all of our 54 countries up on different whiteboards and when a film isn’t getting in one week in France, we used to not play anything that, well, a film would pull over its fourth week, or its fifth week or whatever it was and the business model wasn’t so good in those territories.

Now what we do is we take certain U.S. movies being released differently. So people here who follow us in North America don’t know that we did World War Z or White House Down or in France, in two weeks we are opening a film called [TS Spivet] by the director who did Amelie, a French film.

So we do foreign movies in foreign territories. Our hotline number used to be open like 8 to 6. Now it’s open 24 hours a day. We just have a whole -- our marketing efforts were completely run at Los Angeles on the film side. Now they are also run out of the U.K. and in Japan. So we think completely differently. So, that has made a huge difference.

And the second thing is we hired the former president of Paramount International who has built a whole team in Europe which has helped us do that and that’s really helped crack that market and it’s much stronger. We have been moving aggressively in Latin America more so. The complicated story we had a partner in Latin America who really didn’t need a rollout schedule.

So we have renegotiated that relationship and we put our team on the ground and hired some people. And I think we will start to see some results there soon. In the Middle East, we really had much of a presence and we just announced a joint venture with an exhibitor which is owned by the Qatarian government. So those will be the big areas. And Russia has been very good for us and I expect it will still hold up.

Drew Borst - Goldman Sachs

One of the questions I get frequently is about competition from other large screen sort of formats, just forget the United States, right, Regal, AMC, Cinemark are versions of big screens. And I mean, could you just talk about how you guys compete against that or what kind of risk that poses to you long term. So I think you see this in every country, every territory this risk kind of comes up?

Rich Gelfond

When you say other large screen formats, the one word I take out is format, okay and say other large screen. Because there really is no other format besides IMAX and the reason I say that is we are an end-to-end solution. So we don’t -- we don’t just put up a large screen, as a matter of fact, that’s probably a very small part of what we do.

We are an end-to-end solution based on quality. So either will capture the film with our cameras or we’ll -- we have these proprietary algorithms, which I discussed before we’ll appraise the film. And we work with directors and doing that.

Our projection system is highly proprietary not only different kinds of IT including know-how. So we have a real time feedback loop at every one of our theaters. So we know what’s going on and we can maintain the quality.

So to give one small example, we have something called the Knock Center in Toronto where our headquarters are. And we monitor every theater in the world in real time. So if a theater in Taiwan, its bulb is starting to get dim which creates a really lousy image. We will call up the theater and we will say change the bulb.

And if they don’t change the bulb, we will go to the theater and we will change the bulb. We inspect the 3D glasses. If it’s a 3D movie to make sure, there aren’t striations across them and we will make sure that, that they are replaced along the way. There is the branding effort.

We spent probably all in close to $20 million a year in developing our brand on a worldwide effort. The competition about the only thing in common with us is that they put an X in their name. So there is an X in almost everyone in their name. So basically they are taking an off-the-shelf projector and they are taking it off-the-shelf movie and they are putting it on a big screen.

Now, as I said before, when I discussed our business and those of you who have ever played with these that are called Xerox machines, years ago, and try to blow up images, know that as you blow up the image, it looks worse, not better. So the competition is basically taking the same film that’s playing in the theater next door. They are putting it on the same projector next door and projecting it on their big screen and putting in an X in their name.

Drew Borst - Goldman Sachs

Yeah.

Rich Gelfond

And I -- to give you some examples, 85% of our business is from existing customers on this last year. Wanda has its own product called X-Land and they just signed up for up to 120 new theaters AMC has ETX. And the reason initially that those theaters existed was because we have the zones of exclusivity. So for example, Regal couldn’t go across the street from AMC on 42nd Street and they called us up and they said, since we can’t go, we’re going to put us in there.

So we haven’t really, as a matter of fact, if you look at our growth after the announcement of the copycat theaters, our growth has probably accelerated. And I think there is room in the world for them. I mean there for people who want to pay a little bit more for different experience, fine.

Drew Borst - Goldman Sachs

Yeah.

Rich Gelfond

Do that but it’s not IMAX.

Drew Borst - Goldman Sachs

Yeah. Maybe that’s a good segue over to a second constituent group which is the relationship with the studios and I imagine that there is focus on quality is really important to the studios and to the directors? Maybe you could talk a little bit about how you guys have cultivated that relationship with film producers, really the directors, as well as their studios?

Rich Gelfond

Yeah. You put your finger right on it as the key to really dealing with Hollywood is having relationships with the directors and if you look at who we’ve worked with. It’s very much in A list of directors so it’s J. J. Abrams, it’s Brad Bird, it’s Jim Cameron, it’s Chris Nolan, it’s Steven Spielberg.

And those directors really want the highest quality presentation. As a matter of fact Michael Bay through a bit of attention after the last transformers because the exhibitors had allowed the balls to get really dim and the movie he made was not the movie that was being seen in theaters.

So the directors really love IMAX because it presents their vision the way they want it to be seen and they drive a lot of that through the studios, their passion comes true and the smallest side, it’s also the sound people because sound is a big part of the IMAX’s experience and Hans Zimmer, who is the composer, who did the Batman Trilogy.

I asked him do you write the music for the regular theaters or do you write it for IMAX and he said, oh, I definitely when I scored it out its definitely for IMAX. He said, because on my tunes I don’t wanted to say it sounded crappy in these theaters that’s not who I am.

So the whole talents establish and including the number of stars themselves like if you look at Tom Cruise does a lot of his movies in IMAX because he drives that like in MI4 which was the most successful one in that series was driven by J. J. and Brad Bird and Tom they were all. So that’s a big part of it.

But it’s also the studios themselves because it’s incremental revenue to them because what seems to happen is when you, let’s say a box a complex did $6 million a year and you add an IMAX and the IMAX does $1 million, the next year the box does $7 million.

So what it seems to be doing is partly it’s the price premium, partly it’s taking people off of the couches who would wait for the DVD and the release window or play a game. And our core audience which is fan boys I think it’s gets them out and doing different things. So that’s incremental revenue for the studios.

And then another thing I would say is it’s definitely a marketing hub because in the crowded world there is today if IMAX is doing a movie, I think it kind of says to the public that this movie is something special and I don’t want to misrepresent who said it but it’s in the press one of the studio executives said you really can’t do a blockbuster today if you are not doing in IMAX and I think that very much permeates the mentality.

Drew Borst - Goldman Sachs

Yeah. So Hollywood films are definitely your bread and butter globally but another part of your strategy is working with local studios in individual countries. Can you talk about the, how do those films perform, say, like a locally produced China film, are those performing versus the big Dark Knight Rises or Hollywood film?

Rich Gelfond

Obviously, like all films in the movie industry, it depends on the movie, right. But good local films do as well as good Hollywood films. So in China, we did a film called Flying Swords of Dragon Gate which, as a matter fact with the same director that we’re opening a film this week and that was one of the first 3D films in China and it did really well on a per screen basis. We did a film called Man of Tai Chi which didn’t perform.

So I think the dynamics are very similar for the ones with the Hollywood films. One of our most successful films in China this year was called Journey to the West, which was one of their big movies and did extremely well.

We’re opening a film next week in Russia called Stalingrad and it’s a big APAC film. It’s one of the biggest budgets in Russian history and we have very high expectations for it, by the way you’ll probably find this interesting which is we’re also going to book that film in other countries. I think particularly Japan and China are interested.

We have a film called Dhoom 3 coming out in India, Dhoom 1 and Dhoom 2 were the biggest two films in the history of Indian Cinema. So we’re not only going to show it in India but we’re going to show it in places where there are lot of Indian expats like we’ll show it in London, we’ll show it in Toronto, Vancouver, places like that. So the right ones tends to do very well.

Drew Borst - Goldman Sachs

Yeah. And before I open it up for the audience, just I want to hit on the consumer constituent and I think the big discussion point there is in the past you guys have talked about trying to target $1.2 million per screen over long-term? Is that a target you still think is achievable? Are you pretty comfortable with that?

Rich Gelfond

Well, I think we’re in the process of doing our budgeting and the year hasn’t been over. So I think I have to answer yes until I have more current information. However, if you look at the last three or four years and you draw a circle around that that’s pretty much where we’ve come in and we look at it more or less as a portfolio, so some films will do better and some films will do worse and that’s been around where the average has been for the last couple of years.

The consumer though, one of the most interesting things is the extent to which IMAX index is in, this is a statistic that surprised me. But for most movies particularly recently we’ve been doing 10% to 15% of the U.S. box office and if you figure this 30,000 to 40,000 screens and IMAX is around 330 screens, doing 10% to 15% of the whole country is fairly significant number.

This one really booming away our specific rim, which is as you know in the U.S. was okay but not the biggest success it did around $100 million. In China it actually did more than it did in the U.S. and we were 22% of the Chinese box office.

And by the way going back to what you would ask before on some of these farm releases were north 10% of the box office in their countries with their movies. So it’s not just in the U.S. it’s kind of a global trend.

Question-and-Answer Session

Drew Borst - Goldman Sachs

Yeah. We’ll see if there is any question from the audience at this time. I’ll keep going then. The -- when you look at that $1.2 million, I think you have seen the internationals spool higher domestic has been a little bit lower. Can you talk about the factors that drive that the premium at the international or why is the international so much higher you think?

Rich Gelfond

Well, I think there are a lot of reasons. First of all, I think the international is movie going is kind of such a new experience in a lot of these countries and I think that in the U.S. we had a challenge which is IMAX was known in science museums and as I said, welfares and stills movies. So I think you have to convince the American consumer that it was something different in places like Russia and Eastern Europe and Asia movie going is a relatively new phenomena and I think they grew up with the fact that there were two ways to see a movie either in IMAX or in regular. So I think it’s more entranced in a way the brand and the brand meaning than it is in North American.

By the way when you ask priorities, I left one key one out which is marketing, we just hired a new Chief Marketing Officer who comes with extensive background and we’ve pretty much done very little marketing in North America. I mean most of it focused on online.

But I think there is a -- first, I hope but I also think that there is a lot of low-hanging fruit in North America. I mean you’d be surprised how many people I go up to and I say, oh, did you see that movie in IMAX and they’d say, you mean at the Science Center and I think they just don’t know about it yet.

So I am hoping to change some of that dynamics. I think another dynamic that has just intuited because some of these markets are relatively less screen when you go in them the boxes are crossing such high numbers that as I said that’s a good predictor for what the IMAX is going to do and I think the international boxes are doing large numbers and I think we’ll have to follow the trend that, this is probably over the longer term but as there are more and more boxes does that trend continue and can we reverse the trend, can we make a trend be winded our backs by spending more on marketing, those are the kinds of issues we’re going to deal with.

Drew Borst - Goldman Sachs

Yeah. Maybe one last question just going back to the laser technology you talked about and the way you described it the big opportunity in the short-term is getting those larger screens converted to digital and that’s very important? But do you think over time that this will become kind of the default technology for just the standard theaters, the standard-sized screens?

Rich Gelfond

I think that remains to be seen. One of the problems with lasers is really expensive. So for the larger screens we have all that a tendency to kind of afford it and still get good margins. In the small -- the smaller the theater the less differentiated laser is from conventional technology today xenon-based technology.

So I think once we get through this first cycle we’ll go back to the engineering drawing board a little bit. I think we’ll see whether we can engineer down the cost of the system so that it could be competitive with where we are today and could provide enough of a differentiator that people be interested in purchasing it, so too early to say.

Drew Borst - Goldman Sachs

Okay. Well, we are out of time but thank you very much Rich. Appreciate it.

Rich Gelfond

Thanks, Drew.

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