Good morning, everyone. Please note that important disclosures, including my personal holding disclosures and Morgan Stanley disclosures, all appear as a handout available in the registration area and on the Morgan Stanley public website. With that out of the way, my name is Daniel Duran. I work in Equity Research here at Morgan Stanley covering Media and Entertainment . I'm joined by my colleague Thomas Yeh, and today we welcome Rich Gelfond, CEO of IMAX Corporation. Thank you for being here, Rich.
Oh, thank you for having me, Daniel.
I wanted to start our conversation today by first acknowledging the outstanding weekend performance that Dune: Part Two had in the domestic box office as well as the IMAX box office. With that in mind, can you begin by giving us, from your perspective, how IMAX differentiates itself both in the theatrical and broader entertainment industry?
Yeah, I think you reversed them when you said, the regular box office and the IMAX. I think you should have said the IMAX and the regular. So domestically, on less than 1% of the screens, we did 23% of the box office in the U.S., and globally we did 18% on 0.8% of the screens. So, you know, one in five people in the world decided to see Dune in IMAX. And, you know, I think people haven't really paid enough attention, but Denis Villeneuve, who's the one who directed Dune, said IMAX is the future of cinema, and he made the film 100% shot with IMAX cameras. And he basically told people to go see it in IMAX, that that's the best way to see it. And the only reason the indexing wasn't higher is because we ran out of seats, pretty much, globally.
A recent movie, one of our recent movies right before that, was Oppenheimer, which hopefully this weekend will be collecting a lot of awards at the Academy Awards. Chris Nolan shot that film with IMAX cameras, and Chris told people to go see it in IMAX. And, you know, the numbers were quite similar. And throughout the run, we also added a lot of legs to Oppenheimer. We did about $180 million out of the movie is closing in on $1 billion. And what differentiates the movie in IMAX is many aspects of the experience. So the visual experience is better, the sound experience is better, the theater layout is specially designed to optimize viewing for people. It's just a much superior experience.
People typically spend about $5 more a ticket to see it in IMAX, and that's among the other reasons that the percentage of the box office is so high. We're involved with the filmmakers for years. On Oppenheimer, I probably met with Chris Nolan two and a half years before it opened and read the book. You know, we were involved with our cameras and crews of people and involved in, you know, how the movie was made, and we were folded into how it was marketed. Denis, in Dune this weekend, the last Dune, he shot 40% of the film using IMAX cameras. The results were so good visually as well as the box office that he said this one he was going to shoot 100%. Again, literally we've been talking to him for a long time.
I'm based in New York, but I happen to be in L.A. for a month. I would say there is not a studio and there's not a, you know, a key director or talent that we're not talking to about, you know, putting IMAX DNA into additional movies going forward. You know, you look at, like, our summer of 2025 is already filled up. We haven't publicly announced it all yet, but we have no room to put any more movies in because the filmmakers in the studios understand that there's this global march towards premium. People, when they leave the house, they want to see it in a better way. That's true with concerts and music events and lots of things. You know, they've really been nailing down, the IMAX of it all. I think that's going to become more and more apparent.
The last point I would make is even for this year, the Godzilla vs. Kong movie was filmed specially for IMAX with IMAX cameras, The Joker, Furiosa from Warner Bros. We're at the beginning of a trend which has seen us gain global market share for the last number of years, but recently it's accelerated because of the filmmakers and the cameras.
Yeah, so it sounds like the filmmakers are there. How about the consumers? Are you seeing they're becoming more aware of these ultra, premium experiences, like IMAX 70 mm?
Yeah, I mean, there's no question. We have a theater in England at the British Film Institute, which is sold out for the next four weeks. You literally can't get a ticket. In New York City, there was a 3:15 A.M. show of Dune this weekend, and they all sold out. So consumers, they're willing to pay more. They're willing to come at crazy times. There's a great Variety article, if anyone is into weird articles, about what the crowd was like at 3:15 in the morning and how much coffee and Red Bull they drank in order to, you know, to stay up during the experience. But there's enormous consumer demand. We announced our results last week, and last year, 2023, was equivalent to our best year in box office ever. And so you have to, kind of focus that we're not an exhibitor. We're a very different animal.
So, the box office for exhibitors was down 21%. IMAX's box office was virtually flat from the best year ever, 2019. And it's because of the brand attracting consumers. It's also because we're in 90 countries, and we're not limited by Hollywood movies. So 21% of our box office was foreign language content. And it wasn't only, like, Chinese movies in China. It was Japanese anime in the U.S. and in the Netherlands. It was Indian movies in the U.K. and in Canada. So we have a very different portfolio. And also our financial model, we don't own real estate. We don't have net debt. We have over $400 million in liquidity. It's just an asset-light, completely different model. So, last year we signed 129 new theater systems, which is triple from the year before.
So the consumer demand is not only driving the box office at the theaters, but it's driving real estate developers and exhibitors around the world to expand the IMAX network. As a matter of fact, in our earnings call, we raised our TAM, going forward to where, right now we're only about half penetrated the potential markets we can go into.
Yeah, building off that, is anybody else building, the 70 mm IMAX theaters so we don't have to go to 3:00 A.M. showings? I wasn't able to get a ticket for Oppenheimer.
So fortunately, there's lots of IMAX theaters. In terms of 70mm ones, and for those of you who aren't aware, almost all of our theaters are digital, and we transitioned the company years ago. Some of them, about 30, still have film projectors in them. Traditional film is a little bit like vinyl. Like, the public really has a high demand for that, and people really want to go to it, and we maintain those theaters. And as a matter of fact, Dune, about 10 of the theaters are film. Unfortunately, that's kind of a dated model for a wide release. Just without boring you, but just to give you a sense, 1 IMAX film print at 1 theater costs about $40,000, and it weighs, you need a forklift to pick it up. It weighs over 500 lbs.
So it's not really a model that we can build on, but we've kept that infrastructure in place. And we're always obsoleting our technology. So after we had analog technology film, our next generation was digital technology, and that's done extremely well. And, by the way, the same print, which costs $40,000, costs $100 today. And, our latest technology is laser technology, which provides, you know, a very high-end, incredible experience. And we're always innovating on the sound side. It's not just it's not just the visual look of it. The sound is special. The theater design. We're involved in film technology, so we always have ways of making the image look bigger, better, sharper. And, you know, that's the guiding principle that keeps us ahead. But going back to a film generation, I think it's like going back to before the car was invented.
I don't think you could go backwards.
Got it. So shifting gears a bit, you recently reported 4Q results, and you provided some very helpful guidance for the market. Are there any key highlights that you would like to expand on today as we start thinking about the growth outlook for the business?
Yeah, I think 2024 is going to be much better than the street and the consensus thinks. I think that what happened because of the strikes was the first two months of the year had very little films. I think that, you know, there's always a recency bias. So when people saw no movies, they said, "Oh my God, there are going to be no movies, you know, forever." But just to give you kind of a very interesting statistic, before Dune opened, the box office was down 20% year-over-year. After the first week of Dune, it's now down 13% year-over-year. And as I said before, I think Dune is going to have some real legs on it and play. I think there's a lot of other movies which are going to surprise to the upside. This year after Dune, there's a Kong vs.
Godzilla film. There's Furiosa, which is a sequel to Mad Max. There's The Joker starring Lady Gaga and Joaquin Phoenix, which, you know, my team has seen some of the footage, is really special. There's Wicked. Universal made Wicked One and Wicked Two. While I've been in L.A., I've met with every studio. Just the vibe coming out on a lot of these things, there's Planet of the Apes from Disney coming, and then I forgot probably the two biggest movies of the year, Despicable Me, the sequel coming out, and then Deadpool, which had more views on the Super Bowl, I guess, than any trailer in history. So I think and then there's, for Christmas time, there's a Sonic. There's a prequel to The Lion King. There's just a lot of things out there.
And, you know, I think it's when there's a strike and there's no movies, I think it's easy to forecast, that the future is going to be that way forever, just like when we were in the era of growing streaming services and everybody said, "Oh, that's going to go on forever." And, you know, I just don't think the world works that way, and I feel pretty good about it. But then you go to 2025, and that's just kind of a ridiculously good year. Literally at IMAX, we cannot book another movie from May through September because our schedule is completely filled. And, the vast majority of those movies are going to be filmed with IMAX cameras. And among the movies coming out next year are the final Mission: Impossible . They no longer call it Eight because I think it's going to end the series.
There is Superman, which is Warner Bros.' reboot on superhero movies. There is How to Train Your Dragon, a live-action version. There's Formula One, which is directed by Joseph Kosinski, who did Maverick, and it stars Brad Pitt. It's an embarrassment of riches. What am I missing, Jennifer? Captain America. Oh, and Marvel's doing an original Fantastic Four, likely filmed with IMAX cameras. And that'll integrate a lot of the Fox characters with the traditional Marvel characters. And I'm just giving you, you know, a three-month span. Oh, I forgot a little movie at the end of the year called Avatar, which Avatar One and Avatar Two are the two biggest movies in the history of IMAX. Just last year we did over $250 million on Avatar Two. So 2025, I think, will be an amazing year.
That's great to hear. Here at Morgan Stanley, we're very bullish on theatrical. So, let me follow up on that. So given the likely increase in high-budget films in the years to come, can you speak on how you manage the crowding effect issues with blockbusters? And this is, you know, important because, given recent trends, it seems more and more like you need an IMAX window to have an effective blockbuster.
So in my meetings in L.A., you know, one of the high-ranking filmmakers basically said to me, "We can't release a film without IMAX being a cornerstone of the release schedule." So what you do is you start really way in advance, and you start talking about, you know, whether it's with cameras or aspect ratio, you know, when the dates will be. And a number of the studios have, as part of their greenlight process, is there going to be an IMAX release? If there is, are we going to film it with IMAX cameras? And, you know, like I said, for next summer, it's over a year away, and we've already booked those slots. Part of this was driven by a kind of a controversy, which I think actually benefited our brand, which is we had agreed to do Oppenheimer last year.
Mission: Impossible dated an IMAX about 8 days before Oppenheimer. For whatever complicated reasons, it ran out of steam when it lost its IMAX screens. I think that was like a wake-up call to Hollywood, and they kind of said, "We better lock in the IMAX release early. Otherwise, you know, we're going to come up short." So that's really been a catalyst for people to date their movies in advance. The other thing I would say, which is quite interesting, a little subtle, is that studios can't talk to each other about release dates. That's illegal under the antitrust laws. But they certainly can talk to us about an IMAX release date. So if a studio calls us and says, "We want July 4th weekend," we could say, "Sorry, we have something on July 4th.
Can't do it." And then they would come back and say, you know, "What about August 1st or whatever it is?" And we'll say, "We can do that." So I think we actually play a role in the ecosystem and rationalizing it so there's not a pile-up, you know, back to your question, of too many movies being dated at that time. And I think, in a sense, and the public gets this, we become somewhat of a curator for these, you know, these global blockbusters. And then, again, as I said before, a lot of our releases are not North America. So, one good thing is Chinese New Year is usually late January or February, which is a soft season in the United States. So we're able to put a lot of big films then. The big Indian holidays are in an off period for the U.S. films.
I think we can do a pretty good job of spreading it out.
That's great. What about non-Hollywood films? Can you give us some color on your expectations about local language content and alternative content benefiting IMAX domestically but also internationally?
So, the way we think about our film slate is in three buckets. The first bucket is blockbusters. And then under that are Hollywood blockbusters and non-Hollywood foreign language blockbusters. So that's been most of our revenues so far. But we're actually branching out in two other buckets. The second bucket is documentaries. And IMAX built a lot of its heritage on documentaries. And we've had, I don't know, probably 6 films that have done over $100 million. IMAX documentaries, you know, one was on Climbing Everest. And what they do is we see IMAX as an awe-inspiring platform. So Dune is that kind of movie. Avatar is that kind of movie. Oppenheimer, where people really want to seek it out because you feel like you're there and you're inspired. So right now we have a movie releasing in May, called Blue Angels.
We with some partners financed it. Bad Robot, J.J. Abrams co-produced it with us, and then we sold it to Amazon. So it'll play on a variety of IMAX screens, Amazon, in different windows, and IMAX institutional screens. So there's a lot of revenue opportunities in that for us. And at the same time now, we greenlit. It's called Stormbound. And it's about people who chase storms around, including hurricanes and tornadoes. And Adam McKay, who's a very famous documentary filmmaker, is partnering with us on that. And then, another one, we're doing a documentary in China, about elephants that migrate. It's kind of like March of the Penguins, if you remember that years ago. But it's March of the Elephants, and it's a weird migration pattern, which I think will have appeal. And again, we'll sell those to streamers. We'll have multiple release windows around them.
And then there's alternative content. Now, you remember last year, both Taylor Swift and Beyoncé had these concerts, and they did, you know, very well, on a global basis. But we see alternative content as broader. So already this year, we took a 40-year-old Queen concert called Queen Rock Montreal. And using our technology, we made it look brand new, and we remixed the sound. And it did $5.5 million in a little more than a weekend. And, you know, I'm a Queen freak. So seeing Freddie Mercury look like he's alive through a time machine, it was just visually and the sound, it was really spectacular. And then, we did André 3000. We did an alternative event doing that. We did Stop Making Sense, which is a Talking Heads documentary. But we've also done live events. And, you know, stay tuned.
We're working on kind of a very large live event that we'll probably announce shortly if it all gets finalized. But we're looking at alternative forms of content. Other things are, we've thought horror would be a great venue for IMAX because it's like you're in the movie at IMAX. You're not watching, you know, somebody getting scared. You are getting scared. And, you know, a number of other things like that. So right now, blockbusters are the vast majority of our box office. And we're not going to flip a switch, and that's not going to be the case, especially given what the slate is in 2025. But I think over time, you'll see us mix in more documentaries, more alternative content, and more foreign language film.
Great. Thank you for that. Thomas?
Yeah. I would love to expand on that non-U.S. opportunity. It does seem to me that the box office is in varying states of recovery based on the country that you pick. And I think China has come back, but some of that seems more focused now on local content as opposed to the Hollywood content. So it sounds like you, as a company, are exposed to some of that. But maybe just talk about what the drivers of are in terms of a recovery, what you're seeing in these markets that might be different.
Yeah. I would use the opposite word of exposed. We're benefiting from it because we saw this trend start to happen years ago. We have over 100 employees in Shanghai. We work with every major studio, most major filmmakers there. We have a, you know, a team of people embedded in that market. Last year, we did about $300 million in box office in China, which was up significantly from the year before. China was just emerging last year from the pandemic. So you're quite right. Hollywood films, you know, have not done as well. But last year, we had our best Chinese New Year ever because we this year, we're filming 4 IMAX films with IMAX cameras in China. We're very much embedded. For those of you who don't know, we have 800 theaters in China.
When we're involved in a film, we do 10% of the box office there. So it's, you know, it's an important market to us. Another example, Japan. Japan, we have per-screen average is the metrics that we look at for theater performance. In the U.S., our PSAs are $1 million. In Japan, they're $2 million per theater. So local language film in Japan, we've also really killed it. We started off with Hollywood films. But now there's almost not a big Japanese film that they don't want to release in IMAX. One example, I'm sure many of you have heard of Miyazaki, the famous anime director in Japan. He made his last film called The Boy and the Heron, which is actually up for an Academy Award this year. You know, he's old school.
He said, you know, I'd never release it in IMAX. I do it the way I do it. But he saw our tests, and he saw the results, and he released it in IMAX. And again, the box office was extremely successful. So we're really focused, you know, not just on the Hollywood box office, but the opportunity, globally. And one thing in 2023 that happened, which was very interesting, is that Japanese films didn't only play in Japan, but they played in the United States, and they played in China. So, Demon Slayer was a huge success. In Korea, they actually released two TV episodes in IMAX. And they did $2 million on, I don't know, I think it was like 20 screens, which is a very good performance. And Indian films being released on a global basis.
You know, IMAX is really the only company in the world that has the infrastructure on the ground to pick out those films. And again, that I said this before, but I'm going to repeat it. You know, the regular box office was down from 2019, the one that exhibitors play in, by 21%. And we were flat. And we continue to work on that. I mean, it's just a different model. I'm sorry for being repetitive again. But you know, Denis Villeneuve said, "IMAX is the cinema of the future." And you know, I certainly see it that way. And I think as these things unfold, other people will see it that way.
Is that market share structurally consistent, I think, in terms of just the long-term? The non-Hollywood component continues to grow.
You mean in China or everywhere?
Yeah. Outside the U.S.
Our market share has been increasing. I don't remember exactly the number, but I think between, like, 18 and 23, it was up like around 50%, our market share.
OK. Makes sense. I wanted to also ask about your relationship with the larger exhibitors. Like, you talk about that bifurcation in what exhibitors see versus what you see. I think in light of some of the challenging balance sheet structure issues with some of these larger exhibitors, how have your relationships with them changed? And how do you help, I think, in terms of just supporting a structure that continues to provide them with an opportunity to kind of grow IMAX within their theaters?
So yes, a number of their balance sheets are challenged. But that tends to be more in North America than in other places in the world. And, you know, it's a function of overscreening in North America, the LBO-ization of cinema, right, putting tons of debt on it, too many screens, a lot of those factors. So Cineworld went bankrupt last year. They, as you know, in bankruptcy, you could turn down leases. They turned down either 0, I think 0, or maybe 1 lease because the answer is that, you know, our the IMAX is one of the top performers, and et cetera, at virtually all the good multiplexes where they're at. So, you know, that's the nightmare scenario, right? And every one of our payables was up to date. We, you know, we wrote a 0 in that.
I've been in this job for a long time. In 2002, there was another challenge period. And again, not only didn't we lose theaters, but that started a tremendous growth spurt for us because they cleaned up their balance sheets, and they cleaned up their network. So, you know, it's definitely an issue. You watch it. But I think just because of how important we are to that ecosystem, it's not a fundamental risk. One of the business models we have is we offer to joint venture with the exhibition partners. So we put up some of the capital, and we get a bigger part of the box office. So we've tried to look at their difficult balance sheets as an opportunity for us because we're out there.
You know, they'll pay for the retrofit, and we'll put up, you know, a certain amount of the cost of our equipment, and we'll get a piece of the box office. That's a very good recurring revenue stream for us. I think the last thing I'd like to say on that point, and it's nuanced but very interesting, and actually, our client in Belgium, Kinepolis, who did, I think, an 8-theater deal with us last year, they came to us, and they said, look, because of our balance sheet, we're not going to build more big multiplexes. Those are expensive. They take a lot of debt. But if we upgrade to premium and premium is a global trend, people wanting to see things in IMAX, it makes much more sense for us to invest our capital in upgrading theaters to IMAX than it does to build new multiplexes.
So I think that trend is benefiting us as well. You know, with all that said, in China, it's been slower than elsewhere to come out of the pandemic. So I think China is the only place where constrained balance sheets, you know, have small consequences. But again, we're 1% of the screens in China. We have 800 there and another 200 in backlog. So, you know, we've done a very good job there. I think that that's just a small part of our business.
Understood. Makes sense. I mean, you guided to, I believe, 120 to 150 installations this year in 2024. And how should we think about the gating factors in terms of your ability to kind of expand the footprint and your partners and how that kind of comes together?
The only constraint in the rollout is our exhibitor partners. We could do 200 a year, 300 a year, whatever it is. We just have to order the inventory and lead time. We have a design department. We're not the gating factor. The gating factor is the partners. I believe that, you know, maybe during the pandemic. But other than the pandemic, I don't think we've ever missed our installation guidance because we pay a lot of attention to that, and we take it seriously. Every two weeks, we have calls, and people go to the sites to see, you know, what's going on this or there. Last year, our range was 110-130. We did 128 for the year, which is pretty high, close to the high end of the range. We spent a lot of time giving it.
It's a perfect question after your last question. I think, you know, the upside and getting to the high end of that range would probably depend on how quickly China emerges. So, you know, we like to be quite certain that we'll end up within the range. But the reason for the width of the range is we're just not sure how quickly that'll come back.
Makes sense. I mean, you also provided some pretty helpful color on margin expectations, both for this year and then expanding even further, I think, into 2025, into the 40s. What's the driving factor of that? How should we think about the moving pieces to get there?
Well, one of the factors is just throughput. We're an extremely high-margin business. Our margins are in the 30s. In the third quarter this year, they were 47%. So when you go forward to 2025, and you look at that slate, the sheer volume of what goes through should drive we think it'll be in the 30s this year and, you know, have a 4 in front of it next year. So that's the first reason. The second thing is we've been extremely focused on cost control. So we've barely grown our headcount. We did a small acquisition. So our SG&A has gone up a little bit, but just a small amount. And, you know, it's cost discipline and volume. And then I would say the final thing is I know it's a cliché. Everyone uses it to drive their stock price.
But we could benefit in a lot of ways from AI. And no, we're not selling AI products. And no, you know, we're not putting people on our board who are AI experts. But just a lot of off-the-shelf technology can help a lot. And, you know, one example is that our network of 1,700-plus theaters, we monitor it in real time every day. And the reasons we monitor is if the sound's too low or a belt's about to break, we like to be in front of it. And it's a very profitable business for us. But we have tons and tons of data that we couldn't possibly analyze. But we're doing a project now, an AI project, where we could do much more predictive maintenance by putting the variables together. You know, there's a lot of cost in maintaining a worldwide network.
We can buy the right kind of inventory in advance and manage our cash better. But, you know, I could give you, you know, 10 examples like that. Another one I like is just utilization rates at our theaters. So we can monitor, you know, if there are three shows or four shows and how many of them are sold out or not sold out. And we can work with our partners and say, add shows here or something's not working. So there's a lot of things that kind of mining data through new techniques, I think, will help a lot on the cost side. And one example is our DMR, where we blow up our films. We put that into the cloud last year. And, I mean, that's created enormous efficiencies for us, especially in foreign language films.
Got it. Got it. Makes sense. I did want to also ask before I pass it back to Daniel for the last one. What's the in-home IMAX opportunity? I think you made an acquisition back in 2022. And there's also a partnership with Apple Vision Pro. How should we think about how IMAX kind of extends beyond the theater?
Well, IMAX has to be the most underutilized brand in the world. I mean, everybody knows what it is. It's all over the place. But there has to be an opportunity for further monetization in the home. So we bought a company called SSIMWAVE, which actually saves streamers a lot of money and increases quality using, sorry, AI algorithms. And we made a lot of progress since we bought it. It was a small acquisition, $25 million, in monetizing, in trying to monetize it. So we hired a new sales staff, a marketing staff. It was kind of a startup plus. So we've productized it. So I'm pretty sure this year, you'll start to see some more significant financial benefits. And Apple really wanted us on the Vision Pro because of our brand.
We built kind of a 1.0 app, which was actually rated in the Vision Pro's top five apps. You can buy a 2D movie or a 3D movie, and we get paid doing that. But I'm not sure that'll be a big business in the short run. One thing I think we're going to be able to do is show trailers and use it as a marketing tool. I'm pretty enthusiastic about that.
Makes sense. Daniel?
We're out of time, but quickly. If you could reshoot any film in history using IMAX technology, which one would it be?
It's a tough call. So I think it would be between two. I think one, Lawrence of Arabia, because of the scope and the sound and what it looked like then. I think people love to see an IMAX. The other one would be 2001: A Space Odyssey because, again, IMAX and space are very synergistic. But I also think the fact that it was the first film about AI would make it very current, and people would go back and see it again.
Those are great answers. If that ever happens, you have two guaranteed tickets right here. So thank you very much for your time. We look forward to having you next year.
Thank you.
Thank you, everyone.