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.”

This isn’t exactly true as Kodak has had to lower its prices on raw stock, but suffice to say it looks like we won’t be changing our name to Digital Junkie just yet.