Imax Corp. may be staring at a bigger mountain of problems than the climbers in "Everest," the hit documentary shown in its gargantuan-screen theaters.
Troubles for the company started earlier this year with the disclosure of an informal inquiry by the Securities and Exchange Commission into whether revenue was improperly booked.
That news caused Imax's stock to tumble so much that it now trades 70% below its 52-week high. Nine lawsuits have been filed by shareholders. And, the company has had trouble finding a buyer at a time when it needs capital to expand and upgrade to digital technology.
Long term, there's a bigger problem for the Canadian company that pioneered the showing of films on screens as tall as eight stories accompanied by 14,000-watt blasts of sound. As multiplexes convert from film to digital projection, the crystal clear images and 3D technology that once made Imax special are no longer uncommon.
"Imax has distinguished itself especially in a world that is filled with entertainment options including home theaters," said Paul Dergarabedian, head of Media by Numbers, a box office tracking firm. "However, emerging technologies will make the normal movie screen more compelling."
Imax in recent years has worked closely with Hollywood to wow moviegoers at the local multiplex with huge-screen versions of popular releases, among them "Superman Returns" and the "Harry Potter" series, both from Warner Bros.
Still, it's hard for theaters to justify the $1.5 million needed for an Imax projector, sound system and specially designed auditorium.
Because of the high costs, there are just 137 Imax screens in the United States. Only 65 are in multiplex theaters, with the rest in educational institutions, museums, zoos and even two furniture stores. Most of the company's growth is happening abroad, with 145 Imax locations in 40 countries.
"The problem is there are not enough movies, not enough screens or apparent economic benefit for theater owners," said analyst Jeffrey Logsdon of BMO Capital Markets.
For Imax, reels of its film are one of the biggest costs, an especially burdensome cost in an era of digital technology that doesn't require them. Imax's 70-millimeter prints — which run wave-like through projectors at 24 frames a second to produce razor-sharp images — cost about $22,000 each and nearly twice that, $43,000, when they are in 3D. Standard 35-millimeter prints cost just $1,200.
"To grow the company, they need to convert to a digital format," said Dan Fellman, head of distribution for Warner Bros.