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Where Buying A Ticket Puts You Right In The Action



Hollywood sold $5.2 billion worth of movie tickets in the U.S. and Canada in 1993. But with digital technology promising a world of unlimited television channels, some entrepreneurs think it will take more than Jurassic Park to lure folks off their couches and into the theater. So what will? How about high-tech movie houses that put you right in the action? Two upstarts, Iwerks Entertainment and Imax Corp., are pioneering this next generation of cinematic thrills.


FOR THE '90s

Stanley B. Kinsey operates by a simple precept when it comes to entertaining people in today's stay-at-home, media-addled society: "If you can excite them with rides and special events, they'll still come out," he says. Kinsey, a former Walt Disney Co. executive, and Donald W. Iwerks, the technical whiz behind Disneyland's rides, started Iwerks Entertainment Inc. to do just that.

Until now, Iwerks, which was founded in 1986 and went public last October, has generated most of its $32 million in sales by selling simulator rides and giant-screen theaters to museums, theme parks, and expositions. But Kinsey is seizing the moment to launch a chain of high-tech entertainment centers across the U.S. and in Asia. Iwerks calls these creations Cinetropolises: The first one opened in January at the Foxwoods Casino in Ledyard, Conn. Just as Bell Atlantic and Time Warner are doing with home entertainment, Kinsey and Iwerks hope that they'll be able to redefine the moviegoing experience by marrying films with digital technology.

MYTHICAL EGG. What is a Cinetropolis? Start with a a cluster of specialty theaters and rides. Then supply the simulator-ride technology that allows you to hop on a motorcycle from the film RoboCop. Or the 3-D glasses that let you pilot a virtual-reality submarine in a hunt for the mythical egg belonging to the Loch Ness monster.

Kinsey thinks the Cinetropolis is the perfect playpen for the multimedia age. At a cost of up to $18 million, it's a lot cheaper to build than a theme park. And each occupies only 50,000 square feet, compact enough for shopping malls or casinos. At Foxwoods, one can buy a $12.95 ticket good for several attractions, including a ride on a jet fighter.

Learning from theme parks, which are expensive to refurbish if their rides lose favor with customers, Iwerks plans to keep the Cinetropolises fresh by constantly upgrading them with new entertainment software. Keith E. Benjamin, an analyst at Robertson, Stephens & Co., calculates that Iwerks will own or operate 11 Cinetropolises by 1996, which would generate about half the company's projected $120 million in revenue.

Iwerks could use a kick. It gets 40% of its revenue from selling its gizmos to expositions, mostly overseas. But there are no expos scheduled through 1995. And while Iwerks still does well with theme parks, such contracts provide little recurring revenue. Combine that with startup costs for the Cinetropolises, and Iwerks lost $1.9 million on revenue of $15.6 million in the first half of fiscal 1994.

Kinsey is addressing these weaknesses with a strategy of acquisitions and development. On Feb. 22, he announced a deal to buy rival Omni Films International for $34 million. Omni, which builds simulator rides, derives more than 70% of its revenue from overseas. The Cinetropolises, meanwhile, will help Iwerks generate more recurring revenue.

Still, there's no guarantee that Cinetropolises are the Holy Grail. Early sales results from Foxwoods are solid, if unspectacular. And Iwerks faces competition from niche rivals, such as Imax, and big companies, such as Matsushita's MCA, which owns 42.8% of Cineplex Odeon theaters. MCA Inc. plans to put simulator rides and virtual-reality theaters in its multiplexes. "They've still got a long road ahead of them," says MCA Executive Vice-President Charles S. Paul. Wall Street seems to agree: After shooting from its IPO price of 18 to 37, Iwerks' stock is now at 24 1/4 .

Kinsey and Iwerks have enlisted partners to help achieve their dream. Japanese trading giant Itochu plans to develop at least three Cinetropolises in Japan in the next three years. And Michael Ovitz, whose talent agency owns 4% of Iwerks, is advising the company.

Since Hollywood films are a key ingredient for its rides and theaters, Iwerks may eventually take on a studio as a partner. Allying with a studio would give it a ready-made supply of action films on which to base its electronic thrills. For the studio, it would be a chance to get yet another use out of a movie.


If Iwerks is expanding from simulator rides to multimedia theaters, archrival Imax Corp. is doing almost the reverse. Enthusiasts know this Toronto-based company for its giant-screen theater shows, which are a mecca for visitors to the Smithsonian Institution's National Air & Space Museum in Washington. Its newest epic, Destiny in Space, with footage shot by astronauts, will premiere there in June.

Now, Imax Chairman Bradley Wechsler wants to expand into simulator rides and interactive videogames. To do that, Imax is acquiring a company owned by special-effects designer Douglas Trumbull. Trumbull, who created the groundbreaking effects in the film 2001: A Space Odyssey, now designs simulator rides. Most recently, Trumbull created an attraction for the Luxor casino in Las Vegas that features a journey through an ancient civilization buried beneath North America.

Like his rivals at Iwerks, Wechsler thinks big: "The public is going to demand larger-than-life attractions outside the home," he says. "Our aim is to provide the gold standard." Imax wants to help construct recreational centers with a full complement of big-screen movies, simulator rides, and interactive attractions. Its first big project is a 650-seat theater in an entertainment complex Sony Corp. is building in New York City.

To fill all 650 seats, Imax and Sony's TriStar Pictures are co-producing a 3-D film. Called Wings of Courage, the 35-minute movie will use Imax' state-of-the-art 3-D film process and a new sound system, "personal sound environment." Viewers will strap on a lightweight headset with electronic glasses and tiny speakers.

For Imax, building the theaters is the easy part. The company burst on the scene during Montreal's Expo 67, where it constructed one of the first giant-screen theaters. Since then, it has built 106 theaters in the U.S., Canada, and 17 other countries, mostly at museums and theme parks.

The hard part for Imax, though, will be financing its move into multimedia centers. Each one will likely cost at least $15 million, so the company can only afford to build them with partners such as Sony. Last year, Imax generated record revenues of $90 million. Profits at the privately held company are undisclosed, though executives say it is in the black. Still, Graeme Ferguson, one of its founders, complains that the company "has always found it very difficult to raise capital."

That's why Ferguson and his partners put Imax up for sale a few years ago. In January, as Wall Street was salivating over multimedia plays, they finally found a taker. Wechsler, his partner Richard Gelfond, and a fund managed by Wasserstein Perella Group Inc., agreed to buy Imax for $100 million. "Our aim is to expand Imax very rapidly," says Wechsler, a former investment banker, who owns stakes in everything from radio stations to an oil exploration company. To do that, Imax may eventually go public.

I-WARS. Like Iwerks, Imax is also courting partners in the entertainment and technology industries. Wechsler says that Hollywood studios used to shun his company because it didn't have enough theaters. Now, with contracts to build 32 more theaters, Sony and others are starting to take notice. Imax doesn't have Hollywood heavyweight Michael Ovitz to flack for it. But Wechsler thinks his company has some other advantages over Iwerks. For one thing, Imax is known as the more pioneering company on the technology front. It typically pours up to $6 million into each of its theaters. Iwerks, by contrast, tends to focus more on marketing.

Which formula will work? Naturally, Wechsler argues for his Tiffany approach: "The winner will be based not on who can cut the most corners," he says, "but on who can provide the highest-quality experience." Whoever wins, the I-companies are embarking on a high-tech rivalry every bit as spirited as the old-time feuds between Samuel Goldwyn and Louis B. Mayer.


Some high-tech marvels from Iwerks and Imax

BIG SCREENS Giant screens in unusual configurations make the action seem bigger than life. Shake a leg in a 360-degree disco, or watch astronauts walk in space.

SIMULATOR RIDES Viewers sit in a small module, which moves along with events on the screen. How about a ride in the time-traveling DeLorean from Back to the Future?

VIRTUAL REALITY Strap on electronic 3-D glasses and earphones to fly a plane or pilot a submarine in a hunt for an egg belonging to the Loch Ness monster.

DATA: COMPANY REPORTSWilliam C. Symonds in Toronto Ronald Grover in Burbank, Calif.

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