IMAX+Notes+Porter's+Five+Forces+-+Heather

Our team conducted an analysis on the firm, using Porter’s Five Forces, to determine IMAX’s threats and their effects on net income.

Threat of New Entrants (High) – Piracy is a very real threat to all companies in the entertainment industry. Not only does it threaten movies at the box office by enabling consumers to download free copies of the film onlinVD sales also reflect the threat of this new technology and its impact on the industry. For example, DVD sales in 2007 fell to 1,084.6 million units from 1,129 million in 2006.

Threat of Rivalry (Low) – In December 2004, “The Polar Express” marked the first time a Hollywood film was released in both standard and IMAX format. Their Annual Income Statement reflects the consumer response to this successful strategy—net income grew steadily, increasing from $10,244,000 in 2004 to $14,382,000 in 2005. Although IMAX competes on some level with standard format films, IMAX holds a unique position in being the only provider of large format screens.

Threat of Substitutes (High) – With the introduction of products, such as a 65” HDTV, surround sound systems, or DVD players, today’s electronic market carries something for everyone. The ability to purchase such a large TV and customize your stereo system, greatly appeals to consumers. Why pay money to go see a movie, when you have the option to wait until it comes out on DVD and watch it in the comfort of your own home? Although Hollywood films collect a majority of profits this way, (charging an average price of $22.11 per DVD in 2007), IMAX is unable to garnish any of these profits. And with moviegoers dwindling due do a poor economy (falling from 1.60 billion a year in 2002 to 1.40 billion in 2007) it is evident that consumers are taking advantage of these substitutes.

Threat of Suppliers (High) – Net income has decreased drastically from ($16,849,000) in 2006 to ($26,940,000) in 2007. This net loss reflects the high cost of converting a standard 35mm movie to IMAX format. Although IMAX has achieved lower conversion costs, the cost to convert a standard 2D film to IMAX is still expensively priced at $22,500, while a 3D film is upwards of $45,000. It is evident that the materials IMAX uses to convert their films is rare and difficult to imitate, making supplier power high in this case.

Threat of Buyers (High) – The decrease in net income also shows that the novelty of IMAX’s services seems to be wearing off for most consumers. In addition, moviegoers are dwindling due do a poor economy; falling from 1.60 billion a year in 2002 to 1.40 billion in 2007. This decrease in moviegoers and its effect on net income shows the high buyer power in this industry.

Resource person: Ansa Abdul Rehman MBA(p)

University Of Management and technology