Market Insight

First IMAX VR pilot centre receives 7,000 visits in the first 6 weeks

March 07, 2017

Pablo Carrera Pablo Carrera Principal Research Analyst, Cinema
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IMAX Corp. (NYSE:IMAX), provider of premium cinema and more recently also premium virtual reality (VR) experiences, unveiled its Q4 and end of year results at the end of February 2017.

Its core business expectedly threw promising results, with the addition of 161 commercial theatres during 2016 which took the installed base of commercial sites to 1,123 (of which 424 or almost a third are in China). This was reinforced by a multi-picture deal with Disney to release some Marvel, Pixar and Lucasfilm titles and by the China Film Fund reportedly closing its first $100 million. Additionally, a strategic investment in Marvel and ABC TV series Inhumans will see IMAX release two pilot episodes worldwide and participate in sales revenues.

Of the new business initiatives, IMAX VR received considerable attention during the earnings call after it was reported that the flagship IMAX VR Centre in Los Angeles exceeded expectations with 7,000 visitors, most of which were paying customers, during its first 6 weeks. The site offers 7–15 minutes experiences for $7–10, including games based on John Wick and the Star Wars saga.

These results on the VR side had been preceded by a number of announcements relating to content, technology and strategy the weeks before. In addition to the $50 million content fund IHS Markit reported in November, IMAX has inked deals with video game companies Ubisoft and Skydance Interactive to release five games in its VR centres. It also partnered up with HTC to offer content in Vive VR headsets, in addition to StarVR. It also confirmed it would roll out the devised four pilot locations (in addition to the one in Los Angeles and the one in Manchester, due soon) during 2017 after signing deals with AMC and Regal to open VR centres in New York and California, and with Guangzhou JinYi Media Corporation to open one in Shanghai.

IMAX also gave further details about investment and business models. It expects an operational expense investment of $11–13 million largely in VR (a small portion on the Marvel TV Series) to fund the camera it is creating in partnership with Google and the opening of the pilot centres. He also indicated the costs of setting up each centre ranges from $250,000 to $400,000, excluding real estate, and that they favour JV arrangements rather than a licensing model.

Our analysis

The results reported for the first 6 weeks of the first IMAX VR pilot centre should be seen as a positive sign in the right direction but in no way as a predictor of success of that venue or validation of the product (namely the experience). Without data about repeating customers available to prove the contrary, it is likely that novelty has driven most of the sales. This is paired with a marketing campaign that saw 100 real estate professionals, exhibitors and talent ‘brought in’ to be shown the experience, which surely helped boosted numbers.

IMAX describes this market as a ‘huge opportunity’ but also gives a word of caution because it is very early to determine its potential. Indeed, IMAX has set its strategy to reduce risk by finding partners in every aspect, from content to technology to venues. This is crucial in a market still in its infancy, where consumer adoption for home entertainment has been slower than predicted in 2016. 

With these caveats in place, competition to get first mover advantage in the premium VR experience market, is however building up in the US. The VOID, which created a successful experience for the Madam Tussauds museum in New York, has announced it will launch several locations in the US in 2017. And dreamscape Immersive, a start-up in which IMAX itself has invested, plans to bring a VR Multiplex to Los Angeles in September.

On the other hand, elsewhere larger players with cinema links (like IMAX) have jumped onto the Virtual Reality train recently. In Europe, cinema exhibitor MK2 opened a site in Paris and has the ambition to become a large VR operator. CGV, South Korea’s largest exhibitor and owner of proprietary technology such as 4D motion seating, opened its first VR Park in Korea.

Within Asia, China has seen VR venues surge quickly in the form of pop up kiosks, cafes and arcades. IHS ascribes the estimated 6,000 locations at the end of 2016 to a blend of consumer demand and supplier hype but also sees it as a sign that the concept works as a leisure experience for some. Established players are Emax (which reported 179 kiosks in 3Q16 in China, Taiwan and South Korea) and Leke VR (which claims will open more than 1,000 locations in China and Taiwan in partnership with HTC), both of which develop their own headsets and related devices (e.g. seats).

Although the location-based VR market is slowly taking off in the West with a seemingly positive reaction, caution should still be the dominant tune. The performance of the second IMAX pilot centre (first in Europe) due to open later this year in Manchester and the other US locations, as well as the direct to consumer unit shipments, will indicate where market is going. At this stage IHS estimates it is too early to evaluate whether the location-based offering has long term prospects.


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