IMAX Larger than Life


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Unformatted text preview: IMAX: LARGER THAN LIFE CASE ANALYSIS 2015 CORPORATE & BUSINESS STRATEGY IMAX: LARGER THAN LIFE CASE ANALYSIS Individual Written Critique | Daniela Donado 1 IMAX: LARGER THAN LIFE CASE ANALYSIS 2015 INDIVIDUAL WRITTEN CRITIQUE IMAX’s roots trace back to 1967, when four Canadians created a system for projecting movies onto a giant curved screen that seemingly immerses viewers. During its first 25 years, IMAX focused on large-format educational films and installing its system in museums, aquariums, zoos and other institutions. IMAX realized that its growth and profitability were limited niche strategy so in response they decided to achieve faster growth and higher margins by expanding to multiplexes and by launching Hollywood films in IMAX format. The change in strategy was partially successful, but the risk of losing their reputation only IMAX is still running. This assignment is going to analyze IMAX`s external and industry environments and identify the opportunities and challenges it faces through the PESTEL framework and Porters five forces. Through this analysis we can determine if IMAX can thrive as a niche player or if it should look to get acquired, and whether or not to exhibit too many Hollywood movies. External Analysis: PESTEL Framework 1. Political: 1) Concerns about violence, sex and vulgar language in movies have generated considerable efforts from influential politicians to organize and lobby political action to regulate the entertainment industry. 2. Economic: 1) The film industry faced financial challenges in the late 90`s where theater owners declared bankruptcy as a result of the over expansion within the industry, in consequence IMAX had to engage in belt-tightening of its own as the majority of its debtors defaulted. 2) This industry is highly dependent on its consumer purchasing power which means that any fluctuation in ticket prices will reflect on demand. 3. Socio-cultural: 1) Moviegoers preference for films varies by their age, gender, lifestyle or even beliefs. IMAX should consider which target audience they wish to attract and define which genre is preferred by frequent moviegoers before considering releasing a film just because attendance and box office revenues are directly related to it. 2) Trend of increased consumption of educational entertainment. 4. Technological: 1) Constantly evolving film technology caused by large investments in research and development has created newer and efficient methods of film making. 2) Technological advance may be considered as a threat for IMAX because new alternatives of film watching that cause people to stay at home rather than going to the theater. 3) IMAX got funding in technological development from the Ontario Technological Fund. 4) Technology is advancing and companies have to constantly update their technology to become more 2 IMAX: LARGER THAN LIFE CASE ANALYSIS 2015 competitive in the industry. 5) Proliferation of cheaper digital film production and 3D equipment technology. 5. Environmental: There is no significant impact environmentally for the film industry. 6. Legal: 1) Government regulation and policies on the industry which have allowed IMAX to own patented rights for all their research and development encouraging technological advances as well as government intervention against piracy offering copyright protection. 3) Actor unions such as Screen Artist Guilds have been formed in order to negotiate higher wages for their labor. Industry Analysis: Porter Five Forces 1. Threat of New Entrants: Low 1)The threat of new entrants in the entertainment industry is low due to the high capital investment and technical knowhow required to enter into the equipment distribution, production and distribution industry. 2) In terms of distribution IMAX has created a barrier to new entrants by establishing partnerships with cinemas to showcase their films. 3) Piracy has also created a barrier to new entrants. 4) Threat may be reduced by the proliferation of cheaper digital film production and 3D equipment technology. 2. Competitive Rivalry: High 1) IMAX faces direct competition from rival studios like Disney/Pixar and theatre chain such as regal entertainment.. 2) Movie success rates from other production studios make it more difficult for IMAX to turn a significant profit from their movies. 3) Competition among movies within the same genre is so high that studios schedule releases carefully to avoid direct competition. 3. Threat of Substitutes: High There are many alternatives that exist for consumers, aside from the IMAX experience such as DVD’s, pay-per-view, video on demand, theme parks, sporting events etc. Consumers can now enjoy similar experiences in the comfort of their own home. 4. Buyer Power: High 1)Moviegoers are increasingly sensitive to price changes. 2) IMAX’s major customers are developing their own large format and 3D technology, which may pose a significant threat to the future of IMAX if they decide to stop relying on its technology. 3) The bargaining power could be increased if IMAX renegotiated the existing contracts with buyers, however, for buyers it is easy to switch if one studio doesn't offer the movie they want. 5. Supplier Power: Moderate 3 IMAX: LARGER THAN LIFE CASE ANALYSIS 2015 1)IMAX’s in house equipment manufacturing, long term relationship with suppliers, use of firm owned technological resources, and number of patents, significantly reduces the bargaining power of suppliers. 2) However, the film industry has a limited number of suppliers, which consequently provides no substitutes for studios such as IMAX. Taking into consideration the previous analysis we can determine that high rivalry coupled with high buyer power, increasing technology costs, and availability of substitutes prevents companies within the industry from making a desired profit. As a result, IMAX will have to change its strategy in the current industry to maintain a competitive advantage. I believe that an acquisition by a larger studio such as Sony, Disney or Time-Warner is a good idea and developing trend for IMAX in the future because both external market situation and internal company competencies are beneficial for IMAX to grow from a niche player to a market leader. Through acquisition, large studio can not only address IMAX’s financial problem and help IMAX to pay off its debt, but also can get more economic returns and add more value through IMAX. Besides, IMAX can ensure its survival and make more business opportunities in the future. This acquisition could help IMAX to install more digital theatre systems, and invest more money on marketing, to attract more audiences to watch its films and increase its box office revenue. Furthermore, the company could convert the studio films into IMAX large format films with lower costs or even create new films combined with both studio and IMAX’s brand. This will expand their core audience, and create more economic value to both the studio and IMAX. Answering the question if IMAX should exhibit Hollywood movies, I believe that this strategy is essential to increase the company`s box office revenue. IMAX can sustain its competitive advantages such as their strong R&D team and their new technological developments (DMR technology). They should take advantage of their achievement in lower costs of conversion to launch more Hollywood films in the IMAX screens. In conclusion, these changes will not make IMAX lose its differentiation; in contrast, it will create more of IMAX’s brand effect. 4 ...
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