November 29, 2016 | 11:30 AM by Jay Kunstman | jay@jkkapital.com

IMAX Corporation (IMAX) – Will Content Remain King in China?

Yesterday, shares of IMAX fell by more than 7% as a result of a weak holiday box office. According to Box Office Mojo, overall gross revenue for the weekend was at $183.2M vs last year’s $182.5M. While many may just look at domestic sales numbers, investors should focus their attention on the global box office. In the most recent quarter, IMAX announced that while trends in North America remained strong with Per Screen Averages (PSAs) up 8%, there was a 28% Y/Y decline in International PSAs.

MKM Partners has also said that IMAX’s quarter-to-date global box office revenue is about $131M, a slower pace than what is needed to hit the firm’s estimate of $284M for the full 3-month period. One of the major catalysts that is bringing down the global box office is China. For those that do not know, monthly box office numbers in China have started to slow after a solid 49% growth rate in 2015.

Here is the breakdown for the last several months:

April 2016 – Down 24%
May 2016 – Unchanged
June 2016 – Up 15%
July 2016 – Down 18%
August 2016 – Up 12%
September 2016 – Down 33%
October 2016 – Down 19%
Figure 1 (via Bloomberg)

China Box Office

Lastly, looking at the transcript from the MKM Partners Entertainment & Leisure Conference, CEO Rich Gelfond doesn’t seem to think there is anything wrong with the Chinese movie-goer.

Eric Handler, MKM Partners LLC – Analyst

You don’t think there is a change in viewing habits among the Chinese moviegoers or other entertainment options or –?

Rich Gelfond, IMAX Corporation – CEO

I mean, I don’t think that kind of thing happens within a year. There is very little competition with cinema going in China, there’s not really sports leagues, there’s some theater, but it’s much smaller than here. This is just not the same dynamic also, even though they have almost as many screens as North America, when you look at it on a population basis, they are way under screen. So that’s not an issue.

I don’t think all of a sudden they said we’re not going to the movies. I think they just said, we’re not going to see the movies you are offering us.

Eric Handler, MKM Partners LLC – Analyst

So, it’s like content is not maintained for years. When content is, good people show up; when content is not so good, people will not show up.

Rich Gelfond, IMAX Corporation – CEO

I think people commenting on the movie industry jump to conclusions about trends frequently. So there are three bad movies, there is never going to be a good movie again, and there are three good movies, there’s never going to be a bad movie again. One of my favorite sayings is, it’s never as good as it looks or as bad as it seems. And in the movie business, I think you have to take that point of view.

Eric Handler, MKM Partners LLC – Analyst

And you’re not seeing anything — I mean, for a country that’s been adding 5,000 or 6,000 screens a year, you’re not seeing any type of slowdown among — in terms of the build-out?

Rich Gelfond, IMAX Corporation – CEO

No, I mean, last year, our network grew by 50%, and our per-screen average went up in 2016. This year, it’s a little bit back-end loaded, but we also have, I think it’s around 35% growth in our network this year. So, no it continues unabated, we just signed a 150-theater deal with Wanda, which was our biggest deal in our Company’s history, we did that in July. So, for the contrary, I think the sector is on fire.

IMAX Chart

#IMAX

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