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Imax shfts focus to theatres in China

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Imax Corp. chief executive officer Richard Gelfond chose a new locale to report on his company's latest earnings Thursday. Far from his office in New York, he spoke to analysts from a market that accounts for a small fraction of its revenues: China.

"We're here because of the tremendous growth of our brand across this market," Mr. Gelfond, speaking from Shanghai, told analysts on a conference call to discuss Imax's third-quarter results.

China has become a major focus for the company as its economy develops and a growing number of citizens with disposable income flock to entertainment options.

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They do not always have the opportunity to spend their money at the box office, however: There are 35 cities in China with more than a million residents, that do not have a movie theatre, Mr. Gelfond said.

China is a minor player for Imax: Revenues for the quarter from "Greater China" (which includes Hong Kong, Taiwan and Macau) were $5.68-million (U.S.), smaller than in Canada, which drew $5.86-million. The U.S. is Imax's biggest single market, accounting for $39.5-million out of total worldwide revenues of $67.5-million. That figure is up 32 per cent from $51.1-million a year ago.

But Imax sees promise in China. From now until the end of the year, it expects to open three new theatres a week.

Other theatre operators are also racing to build more: The country's total screen count was up 24 per cent to about 7,700 in the first nine months of this year. Imax capitalizes on this expansion two ways: by selling its equipment to those exhibitors for use in their theatres, or striking revenue-sharing partnerships where it provides the equipment to build Imax-branded theatres and then takes a cut of the box office revenue.

In March, the company signed a 75-theatre revenue-sharing agreement with China's largest theatre operator, Wanda Line Cinema Corp., Imax's biggest international partnership. The company now has 200 screens either open or in the works in China.

Sitting down to breakfast in China last week, Mr. Gelfond heard some news that perked him up more than any coffee could have. His company's trademark big screens are a must-have for new theatres, an executive from a state-owned real estate developer told him. Every multiplex the company builds in China, unless there are exclusivity agreements, is expected to include an Imax theatre.

"It's a fast-growing market that is under-penetrated for movie screens," said Gabelli & Co. analyst Brett Harriss. "I think they will be successful. That being said, China is a notoriously difficult place to operate. … Rule of law and financial transparency is not anything close to what it is in the U.S. I think it's great, but there are going to be some hiccups along the way."

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Imax is targeting developing markets as a major opportunity for growth. Mr. Gelfond emphasized the BRIC countries (Brazil, Russia, India and China) will be key markets. About 75 per cent of the new Imax theatres opening before 2013 will be overseas.

"It's particularly exciting to be on the ground floor of many of these key markets … where most of our growth will come from our brand-new, ultra-modern complexes," Mr. Gelfond said.

Imax reported net income of $8.4-million or 12 cents a share in the quarter ended Sept. 30. That was up from revenues of $6.7-million or 10 cents a share, in the same period a year ago.

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