IMAX serves as real estate proxy

An estimated 150 shopping malls were due to open in China's 20 largest real estate markets last year, according to Jones Lang LaSalle. This retail-oriented construction spree - and the knock-on effect in terms of demand for multiplex tenants - is one of the reasons why FountainVest Partners teamed up with CMC Capital Partners to buy a 20% stake in movie theater operator IMAX's China business for $80 million.

However, it was not the only reason. The private equity firm had considered investing in movie theaters before but never made the leap.

"The revenue sharing and rental costs vis-à-vis the shopping mall owners have always been a key factor driving the profitability of multiplex operators," a source familiar with the transaction tells AVCJ. "IMAX is a great business given its proprietary technology and the revenue-sharing model with the movies. They share in the success but don't have to pay the additional rental."

China is the world's second-largest movie market with box office sales growing 27% year-on-year in 2013 to reach $3.6 billion, according to the Motion Picture Association of America. Greater China - including Hong Kong and Taiwan as well as the mainland - is IMAX's second-largest and fastest-growing market, accounting for approximately 19% of its $287.9 million in revenue last year.

The company opened its first theater in the mainland in 2011 and had a total of 173 in operation in Greater China as of December 2013, with an additional 239 planned for installation by 2021. Greater China accounts for 58.7% of IMAX's current global backlog. It has a partnership with Wanda Cinema Line Corporation, China's largest movie theater chain, and is working with a unit of television manufacturer TCL Corporation on develop premium home theater systems.

IMAX decided to bring in external investors in part because of how its business has evolved globally and in China. The company has gone from a straight equipment retail model to revenue-sharing model with cinema operators, whereby it defers a portion of the up-front payment for a share of box office revenues from the screens. More capital was required to sustain this approach.

"And then the media industry is growing fast but it needs navigation, so they wanted Chinese partners to grow the business with them," the source adds.

It is said that FountainVest brought in CMC to help with the navigation. The media and entertainment-focused GP has a string of state-owned sponsors and is run by Ruigang Li, former president of Shanghai Media Group, which has extensive interests in film and television production.

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• Topics
• Greater China
• Media
• China
• Fountainvest Partners
• China Media Capital
• Media