Supply, Demand, and the IMAX

Like me, you might have tried unsuccessfully to buy an IMAX ticket to The Odyssey.

IMAX’s CEO would have been pleased.

IMAX Economics

Our story starts years ago when IMAX CEO Rich Gelfond took a family trip to Washington DC. After seeing at the Smithsonian a film called To Fly! on what was then one of the few IMAX theaters in the country, he thought WOW. At the time, IMAX screens were mostly located in museums and science theaters.

As an investment banker, Gelfond rather fortuitously saw that IMAX was for sale. Recognizing the opportunity to spread a technology beyond museums, he felt the firm had enough potential. When he bought IMAX, the price was approximately $100 million.

Thinking of IMAX’s factors of production, the weight of its physical capital stands out because everything it needs is large. It uses big cameras, projectors the size of Volkswagens, and heavy film. Needing a forklift, just one film print could have weighed 500 pounds. So, establishing a stand-alone movie theater network was somewhat daunting and expensive. When they had 55 screens, Steven Spielberg refused to do one of his movies with them until they had 1,000. Ultimately, they had a deal with AMC and were able to combine standalone with multiplex locations.

Our Bottom Line: Supply and Demand

The rest of the story is economic history because the IMAX business model has supply and demand roots. While there are 1800 IMAX screens, only a relative few are 70 millimeters–one in NYC, 30 around the country, and 41 in the world. With theaters and film that that have astronomical costs (one print at $50,000), movie selection needs to guarantee the payback. As a result, to create peak utilization, quantity demanded needs to exceed quantity supplied. To fully amortize print cost, every seat needs to be sold out.

So yes, they choose their films very carefully. Avatar gave them their big takeoff. And now, aiming for sharper sound and phenomenal picture quality, director Christopher Nolan used IMAX cameras entirely for shooting The Odyssey.

Defined as limited quantities, scarcity is the heart of all we learn in economics. But IMAX took scarcity to a new level.

My sources and more: We started thinking about IMAX theaters after listerning to The Journal podcast. Then, WSJ and Seeking Alpha told us more.