Lawsuits Blur the Big Picture for Imax

This should be the best of times for Imax Corp., the Toronto-based company that is the clear market leader in the business of putting large-format films on huge movie screens.

Imax’s theaters, including the one that opened last week in Irvine amid much fanfare, are drawing raves and crowds.

The company has turned red ink into black in making a healthy profit, and it’s developing a following of bullish analysts and investors. Its brand is so strong that the name Imax has become synonymous with the making and showing of giant-screen films. The films are shot on film frames 10 times as large as conventional 35-millimeter ones and are shown on screens as high as eight stories.

While its direct competitors have largely been floundering, Imax’s stock has soared nearly 200% over the last year as the company forged ahead with a strategy of moving Imax movies from places such as museums to commercial sites, for which the company is expanding into building elaborate 3-D and motion simulator versions.

“It’s developed a brand name. It’s become a real leader in the new high-techy, futuristic kind of programming,” said former Home Box Office chief Michael Fuchs, who recently joined the company’s board of directors.

So what’s the problem?

Blurring the picture for Imax are lawsuits filed within days of each other two weeks ago by two chief rivals, Showscan Corp. in Culver City and Iwerks Entertainment in Burbank. Both companies are known for their work in ride simulation, but they have failed to dent Imax’s core business in a significant way.

The companies say that’s through no fault of their own. Although each has different gripes, both essentially allege that Imax has engaged in predatory actions, has thrown its weight around unfairly and has used hardball tactics in violating various antitrust laws. Imax denies all of it and says the suits are the reaction of jealous, inept competitors.

*

In its lawsuit, Showscan alleges Imax “has possessed monopoly power in all relevant markets--that is, the power to control prices and to exclude competition.”

The company contends that Imax harassed it with “sham” lawsuits and bad-mouthed Showscan’s technology to customers. Iwerks, in a separate lawsuit, alleges that Imax engaged in “an anticompetitive campaign to eliminate competition, including refusing to supply its films to theaters that used competing equipment.”

Showscan and Iwerks say the suits are a coincidence, but Imax doesn’t buy that, calling the lawsuits “phony.” Its executives see the suits as an effort to piggyback on Imax’s success at research, development and marketing.

“We’ve been enormously successful from a marketing point of view and financial point of view over the past couple of years,” Imax Vice Chairman Richard L. Gelfond says. “Both of these companies had a lot of trouble. . . . They’re looking at our results and saying: ‘What’s an easy way for us to become like Imax.’ ”

Both Showscan and Iwerks have been troubled by losses. Showscan’s stock, which was above $10 a share in 1991 and trading around that in 1994, has been hovering around $6 for more than a year.

Iwerks’ stock has been sluggish as well, and the company has been plagued by management turmoil.

It’s not exactly clear how dominant Imax is. Its competitors say it controls anywhere from 80% to 95% of various portions of its business, which includes making the cameras and producing films and exhibiting them. Imax insists that it isn’t the big gorilla it’s being made to appear.

In the area of distribution of large-format films, for example, the company maintains it controls only about one-third of the market.

What the suits do illustrate is that there is finally something at stake in the much-hyped world of so-called location-based entertainment, a vague buzzword entertainment executives have thrown around for years. They use it to describe entertainment and retail centers that somehow revolve around a moviegoing experience.

Lots of big plans have been hatched, and shelved, over the years, such as those Sony once discussed of taking neighborhood cinemas and making them into entertainment centers.

*

The challenge is to get people out for an evening at a time when home entertainment systems provide an ever-improving movie-watching experience. One key development has been the success of the Sony Imax 3-D theater in Manhattan, said to be among the highest-grossing screens in the country.

Entertainment giants have been making location-based entertainment a major priority. Sony has been active for some time. Walt Disney Co. recently established a division, and MCA Inc. has hooked up with video game giant Sega to create centers.

Imax, founded in 1967, pioneered the use of huge-screen 70-millimeter movies, but it focused mainly on museums such as the Museum of Science and Industry in Los Angeles and the Smithsonian Institution’s National Air and Space Museum.

The push by Imax into more commercial arenas came after the company was bought in 1994 by a group led by financiers Gelfond and Bradley Wechsler, both former executives of the now-defunct Drexel Burnham Lambert investment bank. They brought in Douglas Trumbull, a special effects guru known for his work on “2001: A Space Odyssey” and Steven Spielberg’s “Close Encounters of the Third Kind.”

Says Fuchs: “This is a pretty exciting business. There’s plenty of upside.”