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IMAX Corporation IMAX announced its plans to introduce the Virtual Reality (VR)-based theatre offering this year. The announcement came on the heels of a deal inked by IMAX and Alphabet Inc.’s GOOG Google to develop next-gen, high-grade, 3-D, 360-degrees cameras. IMAX has also entered into partnership with Sweden-based Starbreeze AB, a company that specializes in the creation and distribution of high-quality StarVR headset gear.

The Strategy

IMAX aims to leverage StarVR’s capabilities to create a unique premium 3D VR experience. With the development of an improved VR camera, IMAX will be able to clinch deals from Hollywood studios and filmmakers for the creation of VR-based content that will be shown in theatres and movie halls. Such deals should set IMAX apart from its rivals in the cinema space.

Virtual Reality – the Next Big Thing

Although the VR technology is still in its nascent stage, it has attracted a lot of attention in the recent times. Increasing compatibility of PC and console-based games with VR has already given users a taste of this technology. However, a VR-based movie will be the first-of-its-kind offering from IMAX. This is expected to draw more people to the theaters going forward.

Industry Trend

Recent survey data showed that in 2015, movie attendance in theatres was at its lowest in the past 20 years. This trend indicates increasingly demand for online streaming services like Netflix Inc. NFLX. However, we believe that through a premium VR-based offering, IMAX will be able to entice cinema lovers once again and generate substantial revenues. Also, through its partnership with Google, IMAX is implementing backward integration of its operations, which would result in significant operational synergies.

The Bottom Line

For now, IMAX expects to have a competitive edge over its peers on the back of its VR-based movie offering. Soon, however, it may have to face severe competition from consumer-oriented VR headsets like Oculus Rift, manufactured by Facebook Inc’s FB Oculus VR. Oculus VR has been inking partnerships with online streaming services to offer alternatives for VR-based theatres.

IMAX presently sports a Zacks Rank #1 (Strong Buy).

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