IMAX is an enigma to investors. Its brand was established with the 15-perf 70mm film format, without doubt the finest image ever put on screen. But quality can be expensive and therefore unpopular. The cost to distribute first release movies in the IMAX film format was simply too expensive to sustain. IMAX explored digital options to lower the cost of distribution. Steps along the way included the acquisition of a DLP CinemaTM license through its Digital Projection International subsidiary, an in-house engineering effort to adapt the Sony 4K projector, and eventually the introduction of dual-projector 2K DLP Cinema for its digital theatres. From a distribution viewpoint, the strategy was successful. More distributors agreed to release product to IMAX, and the IMAX pleased them with its ticket premium.
But the ticket premium does not always please exhibitors. IMAX screens on their own are often not lucrative for theatre owners. IMAX imposes large licensing fees, and requires a take of concessions and box office. But exhibitors also know that the IMAX brand on their complex tends to increase overall attendance, improving the box office for all screens.
From a technology viewpoint, there is little to distinguish an IMAX digital presentation, whether 2-D or 3-D, from an unbranded digital cinema presentation. IMAX claims all sorts of proprietary technology, both pre-distribution and in-the-theatre. But at the end of the day, its proprietary technology offers only a series of small improvements. The question is whether these improvements present a barrier to entry by others. To test these waters, Cinemark filed for a declaratory judgment to invalidate certain IMAX patents in November of 2009. That case is still in progress. In the meantime, Cinemark continues to expand its footprint of XD-branded screens, which are similar to those of IMAX, minus, of course, IMAX’s license and fees.
Every other major cinema chain is eyeing this case. If Cinemark succeeds, its XD foray will be copied by its exhibitor peers. But will the self-branding of large digital screens by exhibitors really be the end of IMAX? The question invites a discussion of the power of brand.
IMAX guards its brand. It is litigious, sometimes to the extent of being absurd. Most notably, in 2006 it sued In-Three for violation of a patent that IMAX had licensed. In the end, IMAX settled out of court, and then sued the 3-D company whose sole patent license was IMAX’s only claim to proprietary 3-D conversion technology.
Following more traditional steps to building its brand, IMAX has patented many methods to improve theatrical quality, and uses these patents to control access to its screens. In addition, IMAX owns and distributes content, an example of which is its recent release of Hubble footage. It distributes its content not only to its theatres, but to homes through packaged media. By associating its name with the exceptional, IMAX supports its brand strength to the consumer. Building brands can be hard work.
Cinema owners, however, are much less grand in their brand building efforts. They build movie palaces in which they sell soft drinks and popcorn, and possibly dinner. Their connection with the consumer is through their facilities. In analogous terms to consumer entertainment, they are the TV set manufacturer, but not the technology inside.
To better understand the strength of brand, Dolby provides an example. In the 70’s and 80’s, Dolby Laboratories licensed noise reduction to manufacturers of audio cassette players. Consumers loved it. They came to understand that the Dolby mark on any make of cassette player distinguished that player from the rest. Manufacturers hated it. They didn’t like paying license fees to Dolby, and so tried to develop their own noise reduction. While they were somewhat successful in developing noise reduction technology, inevitably, their efforts failed. The noise reduction technology only worked within their limited range of products, and the abundance of noise reduction brands on the market only served to confuse the consumer. Dolby was the mark that was common to all manufacturers and content providers, and so its mark rose above the fray.
Cinema owners would benefit by having a common brand to label their upper crust screens. After all, it’s the bump in ticket price that they are after, as well as the distinguishing mark on their complexes. The common brand could be any that is properly promoted, certainly not a position exclusive to IMAX. If Cinemark were to win the judgment it seeks, it would open the door to competition. While that competition would at first come from the cinema owners themselves, the opportunity for a common upper crust brand from a 3rd party provider will remain intact.
Others have gone down this path before. THX, and to some extent, Dolby, come to mind. But all focused on technology as their differentiator to the consumer. While technology is important, the fact that the consumer first identifies with comfort has received little notice. A blog post earlier this year reports that the movie-goer’s Cinemark XD experience was mediocre in terms of brand experience. There was nothing to remind the movie-goer that the XD experience was special and worth paying for again. Building brands can be hard work.
IMAX could very well lose the case brought against it by Cinemark. If so, it will invite plenty of unwanted competition. But IMAX doesn’t have to fold up shop should that occur. As the first and possibly only successful 3rd party branded experience out there, it has plenty of opportunity. But to take advantage of its potential, IMAX should be sharpening its pencil and improving what it stands for.