Motion Sickness

Strapped into a simulated Indy 500 car whose seats jerk up and down, viewers of the Iwerks Entertainment movie “Super Speedway” rocket precariously around a racetrack, ever in danger of a crash and burn.

The feeling might be familiar to Iwerks investors, who have watched share values crash from nearly $130 after the company’s 1993 initial public offering to around $3 today.

Based in three buildings west of Burbank Airport, Iwerks is the largest maker of interactive movie rides like “Super Speedway.” The hybrid movie-rides, popular attractions at amusement centers and themed restaurants like Dave & Buster’s, feature seats that pitch and roll to give viewers the sensation of driving an Indy car or piloting a spacecraft.

The company of nearly 100 employees also is the second-largest maker of large-screen theaters, behind Toronto-based Imax Corp.

Despite its strong market share in interactive and large-format films, Iwerks Entertainment Inc. hasn’t posted an annual profit since 1996. Its stock price closed Monday at $3.31, down nearly 40% from its 52-week high of $5.25.

But the ride to profitability isn’t over yet, says co-founder Don Iwerks, back behind the wheel at Iwerks as chairman and interim chief executive after retiring from full-time work at the company in 1995.

Asia’s recovery from its financial crisis, as well as determination by the company to focus on sales of its interactive simulation rides and branded large-screen theaters, should boost the firm’s performance in coming quarters, he said. In fiscal 1999, Iwerks had a net loss of $4.8 million, down from an $11.6 million loss the year before.

“The bottom line is returning to profitability and making our shareholders happy people,” said Iwerks, who will lead the company until a new chief executive is found.

Iwerks, 70, a virtuoso film technician, replaced CEO Charles Goldwater, who resigned last month. The son of Ub Iwerks, who designed Mickey Mouse while working with Walt Disney as a young artist, Don Iwerks headed the Disney unit that built film projection systems for theme parks for two decades.

He designed of Disney a 360-degree movie theater and “Captain EO,” a Disneyland and Disney World ride interacting with a 3-D film starring Michael Jackson. These inventions helped Iwerks win a 1998 Oscar for lifetime technical achievement. They also led him and a business partner to hang out their shingle in 1986.

The company went public in 1993, with high expectations. But executives stumbled with their plans for a series of giant complexes with retail shops, restaurants and panoramic theaters called Cinetropolis centers.

One center was built at Foxwoods, a Connecticut casino, and another in Chiryu, Japan. But development costs for others proved toxic to the company’s balance sheets, and its stock price plunged.

“The Cinetropolis real estate and location-based strategy didn’t work out well for the company,” said John Corfino, who headed Iwerks’ film division for seven years before joining Encino-based Stan Lee Media Inc., the Internet venture established by “Spiderman” comics creator Stan Lee. “They had to re-huddle and come up with another breakout strategy. It has been a challenge,” Corfino said.

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The Asian financial crisis didn’t help. Just as Iwerks recovered from early missteps, the Pacific downturn led customers to shy away from investing in the company’s theme park-based products.

Conversely, an overseas economic recovery has bolstered revenues, said Jeffrey Dahl, Iwerks’ chief financial officer. 1999 was the company’s strongest year ever in Asian orders, Dahl said, and customer interest has been renewed. “We’re expecting big things from next fiscal year,” he said.

Milwaukee-based Heartland Advisors, which owns about 28% of outstanding Iwerks shares, declined to comment on the stock.

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The company has high hopes for enhanced simulators, known as “3D/4D FX” products, that build on rides like “Speedway.” In addition to watching 3-D films in seats that move, viewers are blasted with air or sprayed with water to make screen effects come to life.

Iwerks also supplied a 3-D projection system for the “Terminator 2” ride at Universal Studios parks in Hollywood and Florida. Another such ride opened last month at the Happy Valley Theme Park in Shenzhen, China.

And selecting a brand name for the company’s 70-millimeter screens has helped draw customers to the product, Iwerks said. Launched last spring, the “Extreme Screen” brand of large-format theaters has won commitments from buyers in Montreal, Argentina and Scotland.

An Iwerks 70-millimeter theater opened at the Ontario Mills Mall in 1997. Another theater is on order at the Natural History Museum in San Diego.

The company’s screens have appealed to customers in America’s heartland, like the owners of the new Science City at Union Station, a museum in downtown Kansas City, Mo., that opened last fall.

“The Iwerks theater is growing in popularity, but we haven’t had a good, full operational period of time to judge on,” said Science City spokesman Bill Musgrave. The theater shows documentary films during the day and purely entertaining fare, such as a 3-D adventure featuring buxom witch Elvira, Mistress of the Dark, in the evenings.

Still, Iwerks has a long way to go before it can outperform Canadian large-format leader Imax, which had 1999 net earnings of $25.2 million, up from $1.8 million the year before. Imax has stayed focused on the large-format business from the start, and has maintained tight control over its film projection technology by leasing rather than selling key components, observers said.

“The whole Imax network functions like a franchise system, so there’s quality control,” said William Scovin, managing director at New York investment bank Auerbach, Pollack & Richardson Inc., which rates Imax a “strong buy.” The firm does not cover Iwerks.

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But for now, chomping on Imax’s market share is the least of Don Iwerks’ worries. He is again giving advice on strategic matters, looking to boost earnings, as well as guiding the completion of technical projects such as the assembly of a large-format movie camera. Giving pleasure to movie audiences, he says, still gives him a special thrill.

“So many people come up and tell you they enjoyed the film,” he said, recalling the opening of the Kansas City theater.

“You just join in their excitement.”