Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Imax China Holding Inc. has a bigger challenge than a Chinese box office in the doldrums. Barring a surprise hit or two, the Hong Kong-listed subsidiary of Imax Corp. needs a strategy overhaul to win fans.

The giant-screen operator posted a 6.3 percent drop in first-half revenue to $51.6 million,  sending profit down 7.1 percent to $16.5 million. That drove its stock to a record low.

No Blockbuster
IMAX China shares have underperformed both its parent and the broader Hong Kong market lately
Source: Bloomberg
Note: IMAX China went public in Hong Kong on October 7, 2015.

The national slowdown aside, Imax China faces two major hurdles: A shift in consumer preferences from the kind of big-budget Hollywood productions in which the company specializes, toward movies with stronger scripts and more interesting characters; and over-expansion in China's smaller cities, where incomes tend to be lower.

As Bloomberg View columnist Adam Minter noted, Chinese audiences are becoming more discerning and less easily seduced by shlocky blockbusters. Neither this year's surprise foreign hit, the Hindi-language "Dangal," nor the Hong Kong Chinese production "The Mermaid" -- the top 2016 box-office earner -- screened at Imax.

"Wukong," a Chinese production in the Imax format, helped shift the balance away from Hollywood superhero sequels, but blockbusters still dominate. 

As for smaller cities, where Imax has been on a building binge, consumers generally are more sensitive to prices -- a sore point after many of China's ticket apps began doing away with subsidies. Almost 43 percent of Imax China's screens are in so-called third- and fourth-tier cities, according to CIMB Securities Ltd. analyst Michael Ting, who said Imax movies tend to cost 40 percent more than those on conventional screens.

The impact was clear: Imax China reported that average box office revenue per screen tumbled in the first half. 

Still Playing Catch-Up
Chinese box office receipts last year at $6.6 billion were still well below North American numbers
Source: State Administration of Press, Publication, Radio, Film and Television; BoxOfficePro; Bloomberg Intelligence

Now the company may have another kind of image problem: Close ties with Dalian Wanda Group Co. While Imax China's relationship with the embattled conglomerate is domestic, and not part of the overseas deals under scrutiny in Beijing, the optics aren't great.

Late last year, the big-screen operator signed a deal to build 150 additional theaters with Wanda Cinema Line. Including those venues, about 43 percent of Imax China's business is with Wanda, CIMB's Ting says.

For all that tastes are changing, Imax China would benefit from more Hollywood imports. China caps foreign film imports at just 34 per year, yet overseas-made movies still dominate box-office takings. Talks between Chinese and U.S. trade officials may lead to a larger quota, but don't expect a quick boost for Imax China from that direction.

When it listed two years ago, the company rode a wave of bullish forecasts that China's box office would overtake the U.S., the world's biggest, this year. As movie receipts slow, that seems unrealistic. Add finicky audiences and rising ticket prices, and a happy ending for Imax China is hard to see.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Imax China reports in U.S. dollars.

To contact the author of this story:
Nisha Gopalan in Hong Kong at

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Paul Sillitoe at