Richard Gelfond and Bradley Wechsler share the titles of chair and CEO of the company they bought from its Canadian founders 13 years ago. It hasn't always been an easy ride: seven years after their purchase, IMAX faced a financial crisis that nearly ruined the company. Following a spate of over-development of multiplex screens in the 1990s and 2000, the movie industry suffered a downturn. Several cinema chains fell into bankruptcy, affecting IMAX's ability to collect payments, and the company's stock fell to a low of 59 cents in September 2001.
Gelfond and Wechsler successfully guided IMAX through that crisis, but the company faces new challenges today. After exploring options for a sale or merger with a larger firm in 2006, IMAX was unable to find a suitable partner. It replaced its chief financial officer in August 2006 and then delayed filing its 2006 annual report and its first quarterly report for 2007 to restate revenue recognition for the years 2002-2005.
Meanwhile, its stock price fell from nearly $11 less than a year ago to linger in the mid-$4 range for most of July. The US Securities and Exchange Commission and the Ontario Securities Commission continue to conduct an informal investigation into IMAX's timing of revenue recognition.
In an interview with Knowledge@Wharton published last week, Richard Gelfond explained that although he and Wechsler share the same job titles, they actually have markedly differing approaches. He said: "Brad and I approach problems in almost completely different ways, and truth comes out by smashing [those two views together]. We don't always agree, but we break ties by who is more passionate and can articulate it better. I can't think of more than two or three times in a dozen years that we've really had a drawn-out disagreement on anything."
When disagreements between the two men do arise, they tend to be philosophical in nature, according to Gelfond. "Brad likes to say that I see the glass half-full and he sees the cracks," he said. So, the philosophical differences would tend to be where I would say, "Let's go for something," and Brad would say, "What's the payoff in the short run?". Those are dialogues that happen on almost a daily basis.
"I think the reason it works well is this: we share a secretary, our offices are next door to each other, we read every email each one of us gets and we communicate with each other extremely well."
Gelfond was reluctant to be drawn into a discussion about IMAX's tumbling share price. Asked whether the market response to IMAX's difficulties was ‘just and appropriate', he said: "My experience with the market is that it's always a very "react to the moment" kind of thing. It assesses data at the moment, with the biggest emphasis on the most recent data. Our business is really on a parallel track in terms of achieving our long-term goals of growing our network.
"I think it really depends on what your time horizon is. If your time horizon is tomorrow morning, it probably reflects what's going on. If your time horizon is a little bit longer, you're probably overlooking some important long-term objectives that we're well on our way to accomplishing."
Gelfond said that the emerging economies are likely to become increasingly important to IMAX's future growth. He explained that the company opened its first cinema in China five years ago, has six open today and has plans to open a further 30 over the next few years. The company also plans to have 20 cinemas open in Russia and the Ukraine by 2010.
"Part of the reason is that those areas are under-screened. In Europe and the established economies, it's hard to find locations and there's a vested interest in the existing infrastructure, whereas in these emerging economies you have an emerging middle class with disposable income. Their basic needs -food and shelter- are being met, so they're looking for other things to do. At the same time, there's no vested interest in the old technology. It's really an open door for us.
Some other examples: we have five theatres in Poland that are open today. In South America, there's a lot of interest. So I think that's a significant part of our growth."
Review by: Nick Loney