From: China Media Capital
FountainVest to Help Movie Firm to Expand
IMAX’s revenue in China last year grew 26% to $56.5 million, while North American revenue fell. Shown, a Beijing theater shows a 3-D IMAX movie. Associated Press
BEIJING— IMAX Corp.IMX.T in Your Value Your Change Short position plans to sell a 20% stake in its Chinese business to two China-focused investor groups in an $80 million deal that the big-movie-screen operator hopes will pave the way for expansion and an eventual public listing.
IMAX Chief Executive Richard Gelfond said in an interview that investment fund China Media Capital and private-equity firm FountainVest Partners would pay $40 million each for 10% stakes by early 2015. He said the deal gives IMAX local partners who will open up expansion opportunities in one of its most important markets.
The investors will shepherd a public offering of shares of the China operation, IMAX China Holding Inc., in the next five years, Mr. Gelfond said. IMAX China will be paying IMAX Corp. an ongoing trademark and licensing fee for the right to use the IMAX trademark in China, a spokeswoman said. IMAX China is aiming to list in Hong Kong but will be positioning itself to list on other China exchanges, such as in Shanghai, in case that doesn’t work out or a better opportunity arises on the mainland, a spokeswoman said.
Mr. Gelfond said an IPO will enable IMAX to increase the number of screens it runs across China beyond its current 150. The company also has aspirations outside of the theater and is planning to sell by 2015 IMAX at-home theater units
China is a critical growth market for IMAX and is set to become the company’s largest market, as it plans to open more than 237 screens in the next five years, adding to its current 173. In North America, IMAX currently runs 340 screens.
Ticket prices to see movies on the giant IMAX screens vary by location in China, a spokeswoman said, noting that prices are higher in China’s largest cities. In Beijing they cost as much as 150 yuan, or roughly $24.
The broader film industry projects big growth in China, where total box-office revenue in the first quarter of 2014 climbed 30% to 6.7 billion yuan, or $1.08 billion, from the same period a year earlier, according to Beijing-based film research company EntGroup.
IMAX’s revenue in China last year grew 26% to $56.5 million from 2012. That compares to North America, where IMAX revenue dropped 6.5% to $136.2 million last year. The company’s global revenue rose 1.8% to $287.9 million in 2013.
Some industry watchers fear that Chinese audiences’ fondness for IMAX may be a short-lived fad.
Mr. Gelfond said that IMAX’s position in China is different than in North America, where movie theaters were already established before IMAX entered. “In China we’re already a fabric of the market,” Mr. Gelfond said, adding that the company has grown in tandem with cinema chains.
Mr. Gelfond said the new deal will potentially boost revenue by opening up new opportunities for local partnerships, such as deals with local Chinese film studios. IMAX aims to raise the number of Chinese domestic productions playing on its screens from six this year, he said.
Over the past few years IMAX hunted for the right partner in China to guide the expansion, Mr. Gelfond said. “We think we found the right one,” Mr. Gelfond said, referring specifically to Li Ruigang, a longtime Chinese media insider and chairman of China Media Capital.
Backed by state-run China Development Bank Corp., China Media Capital launched in 2009 with an initial fund size of 5 billion yuan ($805 million). It has its eyes set on building up China’s entertainment industry, said Mr. Li.
Mr. Li said in the past month he has been shoring up funding from investors like ad giant WPP WPP.LN in Your Value Your Change Short position PLC to build a $350 million fund for investing in projects in TV, radio, advertising and the cinema. A WPP spokeswoman confirmed that the ad-agency holding company invested but didn’t disclose details.
His work has focused largely on building up the content, but now he is focusing on delivery, he said.
“Investing in technology is another important driver to the future development of this market,” said Mr. Li.
Write to Laurie Burkitt at email@example.com