Imax has signed the biggest deal in the company’s history, hammering out a pact to create 150 additional theaters with Wanda Cinema Line, the cinema exhibition arm of Chinese property to entertainment giant Wanda.
The construction will take place over the next six years. It comes as Imax and other movie companies have become increasingly fixated on China and its burgeoning middle class as a source of growth.
Last year, Imax China debuted on the Hong Kong stock exchange. Imax has a 68% stake in the subsidiary.
Indeed, in some senses, China promises to be an even more critical part of Imax’s business than the United States. With the new deal, Imax will have 742 theaters in the Middle Kingdom, roughly double the number it has domestically.
In China the company is working through a long term plan to convert theaters from deals which are largely sales arrangements to new ones where more revenue is shared. That will make the direction of the Chinese box a more critical component of Imax’s income.
Imax has also seen its share of the Chinese box office increase significantly. And China now generates a third of Imax’s global box office, driven by per screen averages of $325,300 in Greater China during the second quarter of 2016, nearly 50% higher than the $225,900 achieved in North America.
In the first half of this year, however, the Imax China unit saw profitability slow sharply. Box office growth in Imax screens was only 10% compared with China market growth of 21%, reflecting the omission of some key local titles from the Imax theaters. What helped Imax China report 26% revenue growth was similar orders by exhibitors for new screens.
“We’re expanding at a torrid pace,” said Imax CEO Richard Gelfond, adding, “In China people go to regular movies and they go to Imax movies. If they want a first class experience, they go to Imax.”
In addition to Hollywood films, Imax said it expects to increase the number of local-language Chinese films from eight to 10 in 2015. Other upcoming Imax releases in China include “Star Trek Beyond,” “Fantastic Beasts and Where to Find Them,” and “Doctor Strange.”
The pact with Wanda calls for both companies to share revenues from the new locations. Imax and Wanda have a long-standing relationship dating back to 2007 when Wanda Cinema opened its first Imax theatre in Dongguan, China. The 150 screen deal is in addition to the company’s previous orders for screens. When all are installed, by 2022, Wanda will have 360.
Gelfond said that when Imax first entered the country, studies suggested that the Chinese market could support 90 of its theaters. As incomes have climbed and the country’s moviegoers have grown more enamored with Hollywood blockbusters, those projections have climbed northward. Imax now estimates that China can sustain 1,000 of its theaters.
Unlike in the United States, Imax has grown along with the local market. China has been building new theaters at a rapid clip, something that hasn’t happened stateside in over a decade. That means that domestically, Imax has largely retrofitted theaters. In China, Imax has been able to build its locations as part of freshly constructed movie palaces.
“We’ve grown as quickly as the industry has grown,” said Gelfond. “As people in China have designed the cinema of the future, Imax has been part of it.”
In a separate move Wanda announced that it plans to equip 4,000 of its screens with 3D equipment from Real D. The new projection systems will be installed over the next four years. They will lift Wanda’s Real D screen count to 5,600.