Happy Ending Ahead? Imax CEO Sees "Good Outcome" From U.S.-China Talks

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Global stocks have been rattled for months by the often harsh tone of U.S.-China trade talks. Headlines of late have bemoaned the expansion of a trade war into a currency war, if not worse.

Yet film industry technology leader Imax’s CEO Richard Gelfond isn’t worried about an unhappy ending. “I’m quite confident, having done business there for over 20 years, that there’ll be a good outcome for everyone,” Gelfond said in an interview in Imax’s New York headquarters last Thursday.

Gelfond is qualified to have an opinion. Imax has over those years successfully waded through China’s regulatory thicket to profit from the country’s growing spending on entertainment. Today, there are nearly twice as many Imax theatres in Greater China (652 at mid-year) than in the U.S.; Imax has another 300 in the pipeline in the country. According to second-quarter financial results last week, Imax’s China box office climbed by 29% from a year earlier, whereas the U.S. fell. Growth in China helped to lift its second-quarter profit to $13.8 million from $10.3 million a year earlier.

Gelfond concedes a solution to the U.S.-China friction may not immediately be at hand. U.S. President Donald Trump and China President Xi Jinping “face a lot of parallel issues, in that there are internal issues and constituencies talking to them,” Gelfond said.   “They also face existential issues of needing to save face. What probably could have been resolved, if it had been done quietly and more strategically, has mushroomed into something where it’s hard to see a way out where everyone saves face,” he said.

However, he continued, “the economies and businesses are so intertwined, and there are so many Chinese officials that were educated in the U.S. and understand the U.S., and there are so many U.S. companies with an interest in China that there’ll be a pragmatic outcome.” Though he’d like a quicker solution, he added, “I don’t think I know how to draw the line to that.”

His optimism about Imax’s own business in China has been is born out in the third quarter. The company had a record July, helped in part by the new Chinese animation movie “Ne Zha.” “This likely will be a record year for Imax globally,” Gelfond said. “The first half was pretty good, but we think the second half will beat our previous record” on the strength of new or upcoming releases that also include “Hobbs & Shaw” and “It Chapter Two.”

China is doing well jn part because years of brisk economic growth have given consumers have more money to spend on entertainment. That has fed box office revenue, which, in turn, has made it possible for film businesses to invest more “on special effects or actors, or sets, or reshoots and all of that,” he said. “You can really afford high-quality production.”

At the same time, content such as story-telling of local films “is dramatically improving,” he said. “The Chinese have also invested in more film-based infrastructure. They’ve affiliated with some of the top U.S. film schools. There have been Chinese students studying at U.S. film schools. It’s not just directors and screenwriters; it’s also lighting and make-up people. It’s the whole system. A lot of what’s helped the U.S. dominate in the movie business is a lot of that talent, and the perspective is being transferred over to China. You take those three major pieces – capital, experience and reference points – movies that have done well, and it’s kind of obvious that it’s going to get better and better.”

Imax is doing well despite slower growth in China this year in part because Imax films offer an “affordable luxury,” he said. “As the economy has slowed from its torrid pace, people are cutting back on vacations or restaurants – luxury items. Imax is an affordable luxury. Our typical price is around 50 rmb ($7). People want to get away and feel special. They’ll cancel a lot of things, but Imax isn’t one of them,” he said. “In a weird way, I think the slowdown has made an affordable luxury even more interesting for local people than the standard.” The company has upped its marketing game in the country through a partnership with Alibaba-backed ticketing company Maoyan Entertainment, he said.

Gelfond sees Imax’s success in the context of more than two decades of building partners and government ties. Imax’s early business was “whales, bears and seals, meaning documentary movies,” he said. “I wanted to open up the China market, and I thought the best way to do it was off of the institutional business, which was those documentaries, because China at that time was more closed to content. There weren’t really multiplexes in China. To extent there were movie theatres, they were one-offs - not a lot of people went to the movies. It wasn’t part of the culture. I thought if we used Imax as kind of a learning and educational tool, it would appeal to the government. I always understood that without the government’s support, we weren’t going to be able to succeed.”

So starting the late 1990s, Gelfond went “in through the top,” visiting ministers who Gelfond asked for advice. The first client was a Shanghai government organization, and Imax’s first picture in the country was “China: The Panda Adventure.” “Part of the feedback we got from the government was: If you wanted to succeed in China, you couldn’t be like a colonialist. You couldn’t come in with your own value structure and ideas. You had to become part of the fabric of China,” he recalled. Imax then moved its Asia headquarters to Shanghai from Singapore, and expanded its local hires. “Then along came ‘Avatar’” in 2009, he smiled. The film broke China records from enthralled fans that waited hours in line.

“Once that happened, it was kind of off to the races. We had the advantage of being on the ground in China, having a lot of relationships in the right places. We were well-positioned to have a lot of good luck. It just took off. The economic results were really good. The theatres were making a lot of money,” he said. The China operation attracted investment from China Media Capital and Fountainvest, and went public at the Hong Kong Stock Exchange in 2015. “We understood to be a significant player in China, you had to have Chinese ownership and had to be partners with Chinese companies,” he said.

But that wasn’t enough, either. After listing at HK$31 a share, Imax China’s shares eventually fell; on Monday, they closed at HK$17.50. “Even as we were opening new theatres, our box office was flat. We were underperforming. We really spent time in ’17 really analyzing what was going on,” he said. “We couldn’t pick the best movie in China all of the time. In the U.S., we were pretty good at saying, ‘Avengers: Endgame’ is going to do really well, or ‘Lion King.’ In China, we picked a lot of wrong movies. So we missed the opening of ‘Wolf Warrior 2,’ which did over $900 million in the Chinese box office.”

“What we started to do in the big Chinese film periods like Chinese New Year was play multiple titles.   In 2018 we played ‘Operation Red Sea’ from Bona and multiple films. ‘Operation Red Sea’ from Bona was projected to be the fourth highest but when it opened, ‘Operation Red Sea’ was a breakout. We had three films available, and we diminished programing on the other ones. We increased on ‘Operation Red Sea.’”

Meanwhile, this Chines New Year, sci-fi film “Wandering Earth” unexpectedly came in at No. 1. “We had other films that we thought would be bigger. But it was conducive to the Imax format and 3D, and it broke out in a big way. In other years, we would have missed it. Because we had multiple films, it worked” for Imax, he said.

In China itself, local titles have an important role. “We’re also doing more Chinese films especially in lower-tier cities,” he said. “The Hollywood films don’t work as well in those cities. In the lower tier cities, they don’t have the same connection.”

That ability to blend local and Hollywood films helps Imax ride out the choppy waters of U.S.-China trade. “We’re trying to position ourselves as well as we can to avoid whatever fallout there is. For instance, if more United States or Hollywood films are censored more, we have the ability to program more Chinese films,” he said.

Which isn’t to say that he ultimately doesn’t see a brighter future for Hollywood films, too. Under the terms of China’s entry into the World Trade Organization, the country has opened up its film industry wider to imports. Though those talks have been slowed by the current U.S.-China dispute, he sees a more open market.

“Once that all of this gets resolved, there’ll be more foreign films that will be allowed into China. I think the terms will be more advantageous for Hollywood to put more films in there. People expect when (the current U.S.-China dispute) is resolved, it will go back to the status quo. But I think it will be better than that.”


I'm a senior editor and the Shanghai bureau chief of Forbes magazine. Now in my 16th year at Forbes, I compile the Forbes China Rich List and the Taiwan Rich List. I was...