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The Strategy of IMAX
1. External analysis
A. The PESTEL Model can be used to analyze the macro environment of IMAX.
Political Factors
There were some political actions aimed at regulating the film industry due to some position,
violence and sex contents of films which certain groups opposed to.
Economic Factors
During 1990-2007, consumer price index and growth of the U.S. economy remained stable
as the Exhibit 10 displays.
Sociocultural Factors
The consumption of educational entertainment increased since increasing parents looked for
play activities for their kids that were educational. According to MPAA’s demographic data,
the 12-24-year-olds had the largest movie attendance.
Technological Factors
New technologies, such as cheaper high definition camcorders, developed quickly. And also,
the development of new technological distribution channels, such as satellite, cable, and the
Internet, created opportunities for the growth of the film industry.
Environmental Factors
Not directly addressed.
Legal Factors
The Motion Picture Association worked with the U.S. Congress to carry out sentencing
guidelines of piracy in the U.S. film industry and improve copyright protection.
To sum up, the macro environment of IMAX was friendly. The country’s stable economy
growth, the increased social consumption of educational entertainment, the technology
development, and the legal protection all provided opportunities with film companies although
there were some political regulations.
B. The Five Forces plus Complementors Model can be chosen to analyze the external
industry environment of IMAX. The industry here can be regarded as the film production and
distribution industry.
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Threat of New Entrants ----- Moderate
1) High entry barrier due to high capital requirements. Film production is a risky industry,
requiring huge investments. In addition, the conversion from a standard two-dimensional
film to a 3-D film is costly. Therefore, start-ups will find it not easy to enter this industry.
2) High entry barrier due to the brand name of incumbent firms. For example, IMAX has a
strong brand identity of large format films and Disney is famous for animated films.
Therefore, it is difficult for new entrants to build up a brand name within the film industry.
3) Low entry barrier due to easy access to inputs and technologies. With the development
of new technologies, such as cheaper high definition camcorders, new firms are more
likely to leverage their knowledge to develop films.
4) Low entry barrier due to easy access to distribution. New distribution channels for the
film industry proliferate rapidly, such as cable, satellite, and the Internet, having created
opportunities for new entrants to enter the film industry.
Threat of Substitutes ---- High
1) The number of substitutes is high. There are many alternative sources of entertainment,
such as TV programs, radio programs, sports events, newspapers, books and the
Internet. In addition, the development of DVD and home theater facilities have become
a big threat to box office ticket sales.
2) The switching costs to substitutes are low. Although the switching cost to sports events
is high, the switching costs to other lots of media entertainment substitutes are quite
low, as the Exhibits 7 and 8 shows.
The Supplier Power ---- High
Suppliers to the film production and distribution industry are major stars, sponsors, projector
and camera manufacturers.
1) Supplier concentration is high. For example, some actors formed unions such as the
Screen Artists Guild, to negotiate higher labor wages.
2) Firms within the industry can not easily find substitutes. The strict technological
requirement of the film equipment makes it difficult for firms to find alternative suppliers.
3) The switching cost is high.
The Buyer Power ---- High
1) Buyer concentration is high. The 12-24-year-olds have the largest attendance for films
in theaters and also are the most frequent movie viewers.
2) Consumers can have a large number of choices within the industry. Since there are
numerous film firms which produce similar products, it is easy for customers to
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strengthen their bargaining power to choose one firm over the others.
3) Switching cost is low. Consumers can easily switch among the film firms without paying
any cost due to the similarity of the products.
Degree of Rivalry ---- High
1) There are many firms competing in this industry, such as Disney, Regal Entertainment,
MGM, Lions Gate and Carmike, which increases the degree of rivalry.
2) The industry’s high fixed costs drive companies to compete on price intensively.
3) The industry’s exit barriers are high. Only one in ten firms ever recovered its investment
from domestic theater release. This risky feature increases the degree of rivalry.
4) Product differences. Competition among films within the same type is quite high.
Studios schedules release carefully to avoid direct competition with each other.
The Effect of Complementors ---- does not make the industry overly attractive
The complementors of the film production and distribution industry are projectors and audio
facilities. These complementors are unlikely to become direct competitors and they do add
value to the film industry. However, it is difficult to closely associate them in exclusive
relationships which competitors can’t imitate with similar or same complementors.
In conclusion, the film production and distribution industry is quite attractive and hostile. It
appears that new entry does not pose an ominous threat to the film production and
distribution industry. At present, complementors do not make the industry extra attractive.
The four forces that seem to account for the fierce competition of the industry are the high
threat of substitutes, high supplier power, high buyer power and the high degree of rivalry.
2. Internal analysis
In order to evaluate IMAX’s internal environment, we can choose VRINE Model to analyze
the resources and capabilities of IMAX. Two resources and capabilities are meaningful in
IMAX, brand identity and technologies.
Firstly, both of the two resources are valuable. For brand identity, IMAX’s films are seen as
both educational and entertaining. The company can take advantage of the trend of the
increased consumption of educational entertainment to attract larger numbers of audience.
Also, IMAX seized the opportunity of higher education levels of parents and overscheduled
children to locate and design its products in museums, zoos, aquariums and other
institutions. For technologies, IMAX developed 3D cameras and projection systems to create
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realistic 3D effects for the audience. In addition, IMAX’s Oscar Award for scientific and
technical can also help the company to neutralize threats of its competitors.
Secondly, both of the two resources are rare. For brand identity, IMAX was founded as the
only company in the world, which was involved in all aspects of large format films. In
addition, IMAX ‘s educational entertainment films, and institutional locations enable the firm
to create a rare brand image. For technologies, IMAX successfully developed 3D cameras
and 3D directional sound technology. IMAX received the 1997 Oscar Award for scientific and
technical, which is a testament to the rareness of its technology.
Thirdly, for the in-imitation part, the brand identity can be imitated by other competitors as
long as they emphasize developing educational entertainment films and large format films.
The switching cost of different types of films are low, and giant screens are universal in
theaters. However, IMAX’s technologies can not be imitated due to large capital costs, time
costs, and the patent right. The company had held 46 patents in the United States up to
2007. Simply to copy the company’s technologies is impossible.
Then, from the perspective of non-substitution, the brand identity can be substituted by the
combination of financial investments, production facilities and distribution networks for
achieving the same benefit. However, IMAX’s technologies can not be substituted by the
combination of other resources. The effects that IMAX’s technologies bring are unique and
there are no other resources mentioned in the case that can achieve the same benefits.
Finally, for the exploitability, the brand identity has not been exploited enough by IMAX. The
company exhibits increasing entertaining Hollywood movies in IMAX format, eroding its
educational entertainment brand. However, IMAX is well organized to exploit the competitive
potential of its technologies. The company spent huge capital and labor investments on
Research and Development. For example, the company spent about $12.6 million in R&D
during 2005-2007.
Brand identity Technologies
Valuable Yes Yes
Rare Yes Yes
Inimitable No Yes
Nonsubstitutable No Yes
Exploitable No Yes
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In summary, the brand identity can be seen as a competitive advantage, but it is not
sustainable and may cause opportunity costs. This is because the brand identity of IMAX is
valuable and rare, but not inimitable, nonsubstitutable and exploitable. The technology of
IMAX is a sustained competitive advantage because it meets all the requirements of the
VRINE Model.
3. The current strategy diamond of IMAX
Arenas
For product categories, IMAX provides a wide range of products and service, such as film
production and distribution, long-term theater system lease, and theater operations.
Distribution channels include theaters located in institutional settings and IMAX theaters
within multiplexes. For geographic areas, IMAX movies were released in 40 countries in
2008, with most theaters in North America. For market segments, IMAX originally targeted
students and parents in the educational film market, but it expanded the core audience in the
commercial film market. For core technologies, IMAX developed 3D camera and projection
system, advanced MPX technology, and digital re-mastering technology.
Vehicles
For internal development, as it mentioned before, IMAX spent large investments on research
and development, held more than 46 patents, and developed several crucial technologies.
For alliances, IMAX formed alliances with commercial movie theater owners, such as AMC
and Regal, to install IMAX systems in their multiplexes and to screen IMAX movies in
multiplexes with MPX technology.
Differentiators
The differentiator of this firm is its brand identity. IMAX created a unique brand image by
locating itself in institutional environment and by developing educational entertainment films.
In addition, IMAX develops all aspects of large format films, giving the audience realistic 3D
effects.
Staging
Staging of IMAX’s strategy can be seen as rapid expansion. During the late 1990s, IMAX’s
partners --theater owners overbuilt theaters and bought IMAX systems to install, but many
theater owners went bankrupt. In recent years, IMAX continued to sell IMAX digital theaters
systems to partners to increase its presence in the U.S. market. Up to 2008, IMAX films had
been shown in 40 countries. The expansion speed was quite rapid.
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Economic logic
The current economic logic of IMAX is lowering costs and increasing revenues. On the cost
side, for educational films, IMAX decreased the stars cost and the marketing cost. On the
revenue side, for Hollywood films, the company increases the ticket price to make a profit.
4. Strategic recommendations for IMAX
Based on these analyses, the generally strategic position recommended to IMAX is:
Differentiation in global market
IMAX should try to become a famous and trustworthy company, which produces a wide
range of films with higher quality and premium brand image than other competitors.
Arenas
For products categories and market segments, because of the high degree of rivalry in the
film industry, IMAX should develop more Hollywood movies to attract more audience in the
commercial film market. For geographic areas, IMAX should spend more attention on
international areas. Exhibit 11 shows that the revenue of Hollywood films mostly came from
foreign countries.
Vehicles
IMAX is a relatively small firm compared with some studios and theater chains. It can
integrate its resources & capabilities and enlarge its scale through merger & acquisitions. For
example, the company can merge with Iwerks, the only rival to IMAX within the large format
film segment, to emphasize developing large format movies. By sharing advanced
technologies and distribution channels, IMAX could make its resources hard to imitate and
substitute and thereby attaining sustainable competitive advantages.
Differentiators
IMAX’s current brand identity is a competitive advantage but not sustainable, so it should
strengthen its brand loyalty by providing superior and unique products. The company should
pay attention to both educational documentaries and Hollywood movies. It should keep the
educational and entertaining features of it documentaries near museums, aquariums, and
zoos. Meanwhile, it should develop more Hollywood movies in IMAX format to attract the
international audience in multiplexes of large theaters. In addition, technology can also be a
strong differentiator.
Staging
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IMAX movies were released mostly in North America, however, movies are now increasingly
becoming a global industry, especially for the Hollywood films. The company should continue
to expand its international market. For the sequence, IMAX should first expand to developed
countries and then expand to developing countries due to the degree of demands. For the
speed of expansion, IMAX should not expand too rapidly, and it should examine the effect of
present new markets before building more theaters.
Economic logic
The economic logic should be increasing prices by providing premium products for
generating profits. By providing more unique large format IMAX movies, the company can
increase the customer’s willingness to pay extra money for its films.
Next, the 5-step theory can be used to test the quality of the strategy.
Step 1: Does your strategy exploit your key resources/capabilities?
YES. Both the brand identity and technologies are exploited according to the strategy. They
help the company increase its differentiation and the quality of products relative to its
competitors. If two rivals use the same strategy, the company can pursue this strategy more
economically due to its mature technologies and systems, and large market capitalization.
Step 2: Does your strategy fit with industry conditions?
YES. The film production and distribution industry is attractive and hostile according to the 5-
forces model. The current profit potential of the industry is huge since movies have collected
large revenues and the competition is fierce. In the future, this industry will also grow rapidly
in the global market and bring large profits. The key success factors, such as brand identity,
technologies, and mergers, are definitely aligned with the industry’s high buyer power,
threats of substitutes and the degree of rivalry.
Step 3: Will the differentiators be sustainable?
YES. Brand identity and technology are two differentiators according to the strategy. It is
difficult for competitors to imitate and achieve the same premium products and service due to
the large capital costs, time costs and labor costs.
Step 4: Whether the elements of your strategy are consistent and aligned with your strategic
position?
YES. The five elements of the strategy fit and reinforce each other. The products categories
and market segments of arenas, the merger & acquisition of vehicles, the brand identity and
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technologies of differentiators, and the global expansion of the staging, are consistent with
each other to improve the premium quality and prices of products to align with the economic
logic. In addition, they are consistent with the strategic position to focus on differentiation in
the global market.
Step 5: Can your strategy be implemented?
YES. Firstly, the management team supports the strategy. The Co-CEOs of the firm stated
that developing the commercial films could expand the core audience. And also, the U.S.
Congress’s copyright protection and the increased consumption of educational entertainment
of customers provide opportunities for the company to make profits.
In conclusion, this strategy is feasible, according to the test result of the 5-step theory.
