Film-Tech Forum ARCHIVE: Digital Not So Fast

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Posted by Michael Marini (Member # 3490) on 12-02-2009, 09:59 PM:

Digital Cinema Integrators Continue to Bleed Money
Posted by Patrick von Sychowski | February 11, 2009 8:31 pm

There is a standing joke in the industry that to make a small fortune in digital cinema you need to start with a large fortune. Sadly, this sentiment seems to be vindicated by the latest quarterly figures from Cinedigm (formerly AccessIT). The company’s scorecard is impressive enough:

And the revenue has been going up year-on-year and quarter-on-quarter, as the press release proudly trumpets:

Access Integrated Technologies, now doing business as Cinedigm Digital Cinema Corp. (”Cinedigm” or the “Company”) (NASDAQ: CIDM), reported a 10% increase in year-to-date revenue to $65.1 million, and a 6% increase in revenues, to $22.7 million for the fiscal 2009 third quarter ended December 31, 2008, versus the year-ago periods. The Company posted an Adjusted EBITDA (defined below) of $11.0 million or $0.40 per share, an improvement from the fiscal 2008 third quarter of $8.4 million.

But is there any profit? No, the company is still burning through money. $17.4m in losses in the most recent quarter to be precise. What are the implications of this? The 10-Q transcript makes for grim reading;

We have incurred net losses historically and through the current period, and until recently, have used cash in operating activities, and have an accumulated deficit of $128.7 million as of December 31, 2008. We also have significant contractual obligations related to our debt for the remainder of fiscal year 2009 and beyond. We expect to continue generating net losses for the foreseeable future. Certain of our costs could be reduced if our working capital requirements increased. Based on our cash position at December 31, 2008, and expected cash flows from operations, we believe that we have the ability to meet our obligations through December 31, 2009. We are seeking to raise additional capital to refinance certain outstanding debt, to meet equipment requirements related to the Access Digital Cinema Phase 2 Corp. (”Phase 2 DC”) second digital cinema deployment (the “Phase II Deployment”) and for working capital as necessary. [emphasis added]

So the company can keep going to the end of this year, but what is the outlook after that?

Although we recently entered into certain agreements related to the Phase II Deployment, there is no assurance that financing for the Phase II Deployment will be completed as contemplated or under terms acceptable to us or our existing shareholders. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have a material adverse effect on our ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not reflect any adjustments which may result from our inability to continue as a going concern. [emphasis added]

Don’t think that things are any easier for the European brethren of Cinedigm, as both Arts Alliance Media and XDC are likely to be feeling the pain, though as neither are listed companies, that pain is not public.

To underscore the difficulties of this market, Technicolor is recently said to have pulled out of the digital cinema integration and deployment market to focus on core businesses, such as print and mastering services (although the company’s digital cinema website still lists ‘Exhibitor Services’ and talks about its TMS and other features).

While governments are busy bailing out high profile industries such as banks and automobile makers, they are unlikely to be sparing a thought (let alone a dime or Euro cent) for third party digital cinema integrators. They are also unlikely to contribute generously to conversions funds, as had previously been proposed in Germany, France, Poland and elsewhere (only Norway might see such plans through). This means that digital cinema is likely to be delayed by several more years and film is safe for some time yet.

The one company benefitting from this delay is ironically also trying to position itself as a third party integrator; Eastman Kodak. In an article headlined ‘Recession helping Kodak on motion pictures‘ we can read:

The recession is causing economic turmoil worldwide and costing millions of people their jobs. But it’s also helping extend the life of Eastman Kodak Co.’s entertainment film business.

Motion picture industry experts had expected that close to 12,000 motion picture screens worldwide would have been converted to digital by the end of 2008, according to Kodak. Instead, the recession slowed the pace of replacing film projectors with digital ones, and fewer than 8,000 screens have gone digital, said Mary Jane Hellyar, president of Kodak’s film, photofinishing and entertainment group.

“The move to digital adoption essentially stalled out,” Hellyar told a crowd of Wall Street analysts during Kodak’s annual investors conference in New York City last week. “The impact of digital on film … continues to be relatively small.”

Posted by Ian Parfrey (Member # 5122) on 12-02-2009, 10:57 PM:

Ha!

Where is www.filmisdead.com when you need it?

.... perforated plastic strips is soooooooo outdated Dahhhhling.

[thumbsup]

Posted by Todd McCracken (Member # 4718) on 12-03-2009, 02:14 PM:

The article is a Year old.

Edit: Here is more up-to-date information

MORRISTOWN, NJ, Aug 11, 2009 (MARKETWIRE via COMTEX News Network) -- Access Integrated Technologies, doing business as Cinedigm Digital Cinema Corp. ("Cinedigm" or the "Company") (NASDAQ: CIDM), reported a 4.4% consecutive quarterly increase in revenues, to $18.7 million for the fiscal 2010 first quarter ended June 30, 2009, and a 9% decrease in revenues versus the year-ago period. The Company posted an Adjusted EBITDA(1) (defined below) of $9.4 million or $0.33 per share versus the year-ago period of $10.2 million, and an improvement from the fiscal 2009 fourth quarter Adjusted EBITDA of $7.3 million. Net loss of $7.0 million or $0.25 per share includes non-cash expenses for depreciation, amortization of intangible assets, non-cash interest, stock-based expenses, stock-based compensation and change in the fair value of interest rate swap aggregating $9.6 million or $0.34 per share compared to $11.7 million or $0.44 per share in the year-ago period. The company ended the fiscal 2010 first quarter with over $19 million of cash on its balance sheet after having generated positive cash flow from operations of $2.1 million.

Brighter than the above posted outlook. And now with more funding for new installs [Razz]

$75 Million Infusion to Refinance Existing Senior Notes and Provide Capital for Future Growth; Sageview Executives to Join Cinedigm Board

MORRISTOWN, NJ, Aug 11, 2009 (MARKETWIRE via COMTEX News Network) -- Access Integrated Technologies, Inc., doing business as Cinedigm Digital Cinema Corp. (NASDAQ: CIDM), a pioneer in the digital cinema industry, announced today that it has completed a $75,000,000 private placement of securities to Sageview Capital consisting of a Senior Note due 2014 and a warrant to purchase common stock. The capital infusion significantly strengthens the Company's balance sheet, extends debt maturities, provides capital for the Company's continued growth and introduces a key long-term investor into the shareholder base.

In short, its moving forward though not as quickly as we had hoped, but the funding sure helps [Smile]

Posted by Michael Marini (Member # 3490) on 12-03-2009, 05:05 PM:

your post does not change the fact that this company is bleeding
money and needs funding to stay alive

Posted by Todd McCracken (Member # 4718) on 12-03-2009, 05:36 PM:

But you must admit posting a year old article as proof of the current state of digital is a bit out of date, and does not prove that it is stalled when in fact it is speeding up with the advent of DCIP and Cinedigm phase 2 in full effect.

That said, it would be nice if revenues would increase industry wide and the financing end would loosen up but I can say I have no eminent worries about that at least in our sector with the field thinning out so quickly and the financial end getting better with every quarter.

Posted by Mark Gulbrandsen (Member # 72) on 12-03-2009, 06:30 PM:

Seems to me they also came very close to going bust back when they were called Access-IT. I agree though, System integrators do keep you bleeding. You all keep in mind that there will supposedly be a similar thing available through CBG in case anyone wants to donate!

Mark

Posted by Steven J Hart (Member # 2340) on 12-06-2009, 06:27 PM:

Mark, Cinedigm is the "System Integrator" that the CBG is working with.

Posted by Mark Gulbrandsen (Member # 72) on 12-06-2009, 08:50 PM:

Yes Stephen, Am aware of that. They used to be called Access-IT and when they were just about broke they changed the name. I guessthe name change was supposed to fix everything or something [Big Grin]

. I'm sure they will scare away many potential conversions with all the added fees. CBG isn't doing anyone any favors using them to pull it off!!

Posted by Steven J Hart (Member # 2340) on 12-06-2009, 10:27 PM:

After reading the latest "confidential report" from the CBG I'm realizing that its probably been a waste of time and money for me to have become a member. Their VPF strategy MIGHT work for a chain of theaters that currently plays every title on the national break, but I can't see any way that it would work for my single screen theater. I hope we will be able to keep getting film prints for a long time because it will probably be the end of the line for our 74 year old theater if we have to come up with the cash for a digital conversion.

Steve

Posted by Louis Bornwasser (Member # 3063) on 12-07-2009, 06:33 AM:

Greed will save us. Film will be available as long as there is a need (income from) it for the studios. Louis

Posted by Mark Gulbrandsen (Member # 72) on 12-07-2009, 07:11 PM:

Steve... You are spot on!!! It's a loosing proposition even for the bigger independents!!!

Posted by Geena Phillips (Member # 3726) on 12-12-2009, 12:05 PM:

Unfortunately, the economics of digital integration are gonna remain wonky until the studios stop sitting on their hands, hoping against hope that exhibitors will bear the entirety of the cost of updating.

Their attempt to use digital-exclusive 3D to push exhibitors toward adoption is pretty clearly a non-starter, and it's time for the studios to stop screwing around, and start getting serious about VPFs.

Posted by Steve Guttag (Member # 268) on 12-12-2009, 04:09 PM:

The VPF model also doesn't work though. If they pay VPFs, they don't save on the prints...if there is a time limit...then what pays for the next generation of projectors/theatres? If the equipment is not affordable for the exhibitor to make a healthy profit without studio support, then it is a bad financial decision at this time. One is placing themselves in a very precarious position when they are depending on the generosity of others. Either you can afford it, or not.

Oh...BTW...add the Elkins Theatre in Elkins, WV to the Digital 3D list...just finished up an install.

Steve