Cinedigm reported its Q3 Fiscal 2011 quarter ended December 31, 2010 this morning. The numbers were pretty much all as expected. The press release has all the specific details. In summary, they reported just over $21M in revenues (up 7% YoY), $12.9M Adjusted EBITDA and a large GAAP loss, owing to major depreciation and interest expense.

Operationally, Cinedigm completed 604 new “Phase II” digital deployments and added 614 to its backlog. (So a book to bill of just over 1, for those who think about it in those terms.) Cinedigm has over 1270 screens in backlog, so even if book to bill fell below 1 for a quarter or two, it wouldn’t make a difference. However, they are working on closing the few thousand more screens to bring them under agreement and add to backlog.

There were clearly signs that “the real story”, as we see it for Cinedigm, is beginning to unfold. Specifically, they announced that they have signed a deal with some partners in India to bring their technology and services platform to that country. Details won’t be available until they can put out a full press release and have it approved by their partners, but it’s significant because it will increase the recognition of Cinedigm as a technology provider and not as a financing company. This is a key transition for the company, and while this deal alone may or may not be a catalyst for a change in the mainstream view, it’s likely to help.

Secondly, this was the first call with the new CEO, Chris McGurk. To his credit, he stepped up to the plate on the call and didn’t hover in the background, which is what some newcomers do on their first call. McGurk made it clear he’s serious about alternative content, even though most are quite skeptical. On his side of the ledger, though, is a good deal of experience and a large network of relationships to leverage in order to revisit the alternative content model more completely and as a real business. How well they address alternative content and new business models is the next next chapter for the company, so a good strategy now is important.

Cinedigm became a research client of ours a few months ago, and we have published a few posts (listed below) on them already, as we complete our research for a full report. The digital entertainment space is undergoing a major overhaul, and we see Cinedigm as a key player in this area that will emerge over time as more of a technology, service and content provider in this transition.

[Disclosures: Cinedigm is a corporate research client of Research 2.0, and some Research 2.0 employees may own positions in the stock at the time of this writing (positions that were owned prior to engaging with Cinedigm). Additional information about our disclosures and policies can be found on our website on the legal page.]

Related articles

• Is it time for Cinedigm? (research2zero.com)
• Cinedigm Expands the Team (research2zero.com)

Before anyone gets too excited OTOY is *not* a public company right now.

We just published our Thought Leader Interview with Jules Urbach, the Founder and CEO of OTOY. Unlike many of the other players in the space, Jules and OTOY have not been out endlessly hyping and promoting their technology. As Jeff Bezos has recently said, the future of product marketing is in making great products and customer experiences.

OTOY has tamed the massive power of GPU computing to make cloud computing for the most demanding gaming and engineering applications possible. There are a number of fundamental innovations and strong implementations that enable the OTOY “magic” that can deliver stunning content and interactivity inside a browser or mobile Internet device.

More generally, this interview touches on some of the larger industry players including Google, Apple, Nvidia, AMD and Intel along with some approaching key crossover points in the market as technology evolution around broadband speeds, content quality and social networks continues.

The GPU is being woven into the thread of nearly every application and this trend is firmly rooted. For example most of the leading browsers will be exploiting GPU technology to accelerate performance. The same is true for gaming consoles and devices. Microsoft even developed their own silicon that combines CPU and GPU for a future Xbox. So the GPU has become mainstream and new applications are being spawned that will keep the technology curve moving up and to the right. Singularity anyone?

The interview is freely available on the R2 Thought Leader page.

[Disclosure: None.]

A couple of weeks ago I posted on the coming of Internet TV and even the ability to pre-order them on Amazon.

I received quite a bit of feedback from people that were clearly confused about what Internet TV is.

Many people for some reason think that Internet TV is some kind of an either/or decision. It might help if we called it “Internet-enabled TV” instead. One can still watch the normal cable programming along with Internet-sourced content from YouTube, Hulu, Netflix, and so on.

A feature article today in the New York Times today illustrates how important the Internet feature is to allow interaction and social connectedness.

Another key point made in the article is that by getting mixed in with Internet content viewers actually consumer *more* TV programming because their friends, colleagues or just the social world is commenting on it.

The Olympics are serving as a prime example. There is so much coverage of the Olympics that most people just don’t have the time to figure out what they want to see and remember to watch it when it is on. Media companies create “highlights” which help but they also attenuate the content.

This year people are being alerted to segments that they should see by their friends which creates burning desire where there was only mild or even no interest before.

It looks like another disruptive wave is about to hit TV programming. As we have noted here and elsewhere it’s been too-long in coming.

Related Posts:

Coming next week: Internet TV

Broadband v Cable

[Disclosure: None]

So far Internet TV has been slow to get started. Part of the reason is that early efforts like Apple TV just didn’t work very well as a main entertainment system in a home.

Next week the space will get a boost as a new price/performance leader in this space, Vizio, will be shipping a new array of very nice Internet-focused TVs. By focusing on general purpose Internet attachment these devices will serve very well as what they are supposed to be (a TV) but also enable a range of new entertainment and gaming services to be delivered seamlessly and easily over IP networks.

Now instead of having to watch Cable VOD on the TV and Amazon or Netflix VOD on your computer, it will be easy to watch everything on your beautiful, large TV with a sound system and comfortable chairs.

Some have noted that the average consumer is not in a condition to buy these iTV units since they only recently went to HDTV. That may well be the case but it will only slow the take up rate, not stop it. In fact I think that we tend to underestimate how powerful the pull of a new entertainment unit like this is for most consumers. It’s not unusual for a home to have multiple TV sets and we see most incremental purchases including these new features to help “future proof” current purchases.

Vizio is also demonstrating that we are starting down the path of wireless connectivity with the TV. Most “media centers” have been put together in part to deal with the mess of connecting cables that swirl and tangle behind the multiple units that comprise the system. A number of companies have been focused on very high speed wireless methods so that the only connections needed will be power cables.

The remote provides an early example of what we expect to see in the space. This one covers the basics but in the future they will be more elaborate and functional.

With bluetooth it will be easy to add better keyboards as well as specialized devices for gaming and device networking applications.

In summary we think 2010 is the start of Internet in the living room from the iTV to the iPad it’s going to be busy. It’s also one step closer to 3D as well which may be another driver that kicks in starting in 2011.

This link can be used to view these at Amazon.com and to pre-order if you want to be the first on your block to step into what will be more entertainment without all the proprietary borders and limits.

This seems like something Dell should be leading the charge in no?

Update: And don’t forget that Google is taking YouTube to new levels with a redesign and more watchable features like live concerts. The rise of Internet TV will be very good for Google.

[Disclosures: None]

I avoid talking about every technical burp and tweek we review from the major technology firms including Intel, AMD, Nvidia, and the like. (Same goes with every ebb and flow of performance ratings and twists and turns of patent disputes.)

However the recent release of Nvidia Optimus tecnology is another small reason we prefer Nvidia to companies like Intel and AMD in the computing space.

There are several pages of technical description of Optimus available (this is a good one) but we’ll net it out as an elegant way to offer a computer with the power of a discrete GPU engine that is only used when it is needed, thus saving lots of power and helping to lessen the big tradeoff between speed and power consumption which bedevils mobile computing.

The most familiar analogy is the all-wheel drive in cars. In the old days most all cars were 2WD but for a very few 4WD like the Jeep. The drive train was permanent, there was no switching. Then cars started to come with the ability to lock and unlock the 4WD feature when the car was parked and you had the time and willingness to change the hub settings on the wheels. This got better with a simple lever but in most cases you still had to stop the car.

Now 2WD/4WD systems are automatic and unless you do something to prevent it, the car senses and uses whatever drive parameters are needed to maximize performance. The same is true with hybrids that shift between battery and internal combustion engines.

You get the idea.

Similarly it has been possible to manually turn off a GPU inside a laptop but it’s complicated and requires a reboot – so nobody ever does it.

The Nvidia Optimus technology allows a GPU to turn on only when an application that leverages the power of the extra processors is invoked. At the same time it turns off when it’s not needed. So when you are reading email the GPU is off and the power consumption is minimized. When you are done and fire up a video or graphically intensive game the GPU kicks in and delivers the power needed for a great experience.

This sort of “hybrid computing” has been around for some time but what’s important about this is the implementation. An important difference this time is that incorporating the design doesn’t involve extra effort and costs on the part of the device maker. So this will become a standard feature right away. After all any laptop with a GPU and without Optimus is at a major disadvantage in terms of expected battery life which is a big factor in use.

I don’t want to make too much of it but it’s another good datapoint with respect to Nvidia maintaining the leadership in driving the GPU into the fabric of general purpose computing (which BTW is a certainty in our research view, see our other research notes on it.)

Also refer to an earlier post (Nvidia Turns the Crank) for more links.

[Disclosure: The R2 model portfolio has a long position in NVDA.]

The last couple of months have been marked by a broad set of positive developments for the GPU makers, especially Nvidia and AMD. Some of the highlights have been:

Application acceleration goes mainstream. – The leading creative application providers, Adobe and Autodesk, are embracing the GPU and driving the requirement for one into space of generalized computing. This actually started with prior generations of the software but we’ll see more of this in products like Adobe Creative Suite Version 5 but even Flash will take advantage of the GPU to improve performance and the experience.

Internet video gets serious. – Video is one of the leading new applications for the Internet today and it is shifting from the short grainy YouTube content of yesterday to high definition, in some cases even 3D, content. This level of digital video demands more processing power to produce and even to view properly. Everybody want’s video, more so than even text and browsing, and it’s another good reason to have a GPU in computer, especially mobile Internet devices.

GPU in the cloud. – Until recently it wasn’t clear if GPU computing power would be available in the cloud. Given the success of generic on-demand offerings from Amazon, Google and others it seemed only matter of time before we would begin to see it. Both AMD and Nvidia are working closely with the major players and we will see GPU processors on-demand and in the cloud pervasively in 2010.

Cloud-based GPU applications are shipping. – Mental Images has announced and is providing Reality Server which represents the high end of digital image rendering in the cloud. Some companies are using it today with their own cloud servers. Application platforms like OTOY are enabling the highest end of gaming even on mobile devices like the iPhone using cloud-based GPU software and acceleration. Here is a link to a Techcrunch post on OTOY back in June of 2009. We also covered a demonstration of OTOY in our short research report on the 2009 Gilder Telecosm Conference. It’s available in the sample publications section of our website.

3D content has arrived. – The cinema industry has embraced it. Avatar is in theaters this week. A big difference today is that the cinema industry creates content in native digital form which means that content can be moved rather than redeveloped into other formats for games, short videos, images and other forms of consumer entertainment content.

Standards are emerging. – Although there is still plenty of bickering over PhysX versus OpenCL and DirectX versus others, these technologies are settling into mainstream software like applications, browsers, and operating systems. In cases were two important standards make it, it looks like they will both be supported. This makes it possible to deliver high-end graphics and 3D applications to a large market.

We expanded on the mobile 3D theme further in a report published yesterday by GigaOM called: 3-D Untethered: A Look at Mobile 3-D Technology (GigaOM Subscription).

On top of all the industry adoption Intel settled with AMD and paid them $1.25B, scrapped their Larrabee-based plans to enter the discrete GPU market and is under further FTC investigation for trying to screw Nvidia.

Put simply the industry is shifting to video, 3D, and mobile and right now this leaves Intel mostly out of the action. It’s great news for Nvidia, AMD, ARM, Imagination Technology, Qualcomm and a host of other semiconductor makers.

When it rains, it pours.

[Disclosure: The Research 2.0 model portfolio has positions in both Nvidia and Qualcomm.]

Thanks to Google this week already started off with a focus on the real-time web, based on mobility and new devices with sensors, cameras, microphones, HD displays and speakers.   On Monday Google presented a slew of new features and technologies aimed at improving search by location, by voice, and by sight.   When combined with enhanced real-time search, one that includes a variety of content from sources like twitter, location-aware applications and fixed search content, the real-time web becomes a much richer experience than what we have known so far with things like IM and SMS.

Tomorrow and Thursday we will be attending Le Web 2009 in Paris who has chosen “real time web” as the theme.  As with all Le Web events there is a fairly diverse range of content across three different programs but the usual suspects (Twitter, Google, Facebook) will all be in attendance and elaborating on real-time as the latest “mode” of web development.

We wouldn’t put “real-time” as a true facet of technology as it relates to our work.  Latency has been a key factor in technology usage for thirty years.  We did include an analysis of this and other features for what we view as the ultimate Internet architecture in our February 2007 research monthly (pdf).  IBM funded many studies that demonstrated the dramatic increases in productivity and value that came from “sub-second respond time” as we called it back then.  As with many things on the web and in the cloud old things are new again.  What’s new now is the ability to deliver instant responses across applications, networks, distances and devices.

What’s so powerful about this notion today is the richness that can be brought into the realm of real-time use: People, places, things, and all related information in one place and current to within a few seconds ago.  As we’ve written before the initial oohs and aahs of insight will be coming from so-called augmented reality and real-time social networking applications on the iPhone and the like.

From an investment standpoint we continue to focus on the mobile segment of this space with companies like Apple, Google, Research in Motion and Motorola being the ones to own.  Based on our IV work it seems that Research in Motion has the most near-term upside here.  RIM is also too strategic to not be acquired by someone like Microsoft, HP, or IBM.

More broadly we know that cloud-based GPU computing is already in early deployment which will add yet another growth story for both Nvidia and AMD.

If it feels like just the beginning it’s because it is.  There are many more related themes to this trend as it develops ranging from wired and wireless bandwidth, content, devices, cloud services and infrastructure, new software infrastructure and on and on.

Thanks to the exponential pace of technological advance and our linear perceptions, we know that many of these advances will seem to happen “all of a sudden” in the next few years.

For more information on the Google Search briefing there is a summary here on TechCrunch.  More information on the Le Web 2009 program can be found on the Le Web event website. The events on Wednesday and Thursday are supposed to be available via webcast.

[Disclosure: Research 2.0 has model portfolio positions in Google, Apple, Research in Motion and Nvidia.]

Just as we published a research note highlighting some key takeaways from the recent Gilder Telecosm, we see the news that Intel has suspended their immediate plans to enter the discrete GPU market.  From the day we published our Nvidia note on January 29th “Transition is Opportunity for Nvidia” there as been a measurable increase in the rivalry between Intel and Nvidia over the increasingly-important GPU market.  Since we have been highlighting Nvidia as the leading company we’re pleased to see the news but it’s also just a blip on what is becoming a monster technology growth and investment area.

In fact our note highlights the fact that the RealVR and Cloud Computing themes are already converging.  Taken together this represents probably more than 100% of technology market growth in the next decade (although Digital Power and Biological IT will help too.)  Inside this new mega-theme we include all forms of consumer and enterprise cloud computing and the mobile Internet.

Intel still dominates the integrated graphics chipset market so the news is more interesting for AMD and Nvidia.  AMD now is unique in offering both mainstream x86-based CPU options and their own quite powerful GPU chips as well.  Nvidia leads in the mobile and embedded space by a wide margin and has been racking up design wins with Tegra and the ION platform.  Both AMD and NVDA are working with partners to bring GPU computing into the cloud in a serious way.  We are seeing early applications of this technology already.

Although our RealVR Cloud observation steals the show in our Gilder Telecosm update there are other important implications including: much better prospects for investments in alternative energy, particularly Digital Power, now that the unrealistic expectations have been burned off, and more disruption is in store for the very large and stodgy education market.

[Disclosure: At the time of this writing Research 2.0 holds shares of NVDA in their model portfolio.]

Since we published our report on NVDA back on January 29th the shares have vaulted to $12 then sunk back to near $8 and are now sitting in the middle at $10.50.  Our intrinsic value (IV) estimate remains $15 which is a level we think the stock will see this year.  But the story is filled with drama so the levels on the stock are likely to continue to be all over the place.

These two *adjacent* Twitter messages illustrate the situation in a nutshell:

Two adjacent tweets tell the story

Intel has clearly awakened to the threat from the GPU in general and Nvidia in particular.  Larrabee is a very powerful and potentially useful chip but to us it appears to be aimed at the high end of the market which is not where the growth is now.  Over time we expect servers to handle more graphics processing (See our report “Shake Up Time in the Gaming Industry” for more details on that.) but now the trend is towards laptops, netbooks and even smart phones.

Nvidia clearly has been building a lead here. First with the Apple deal and now with a stream of design wins and announcements around their new Tegra and Tesla platforms.  Next week at Computex Taipei many more will be added to the fray.

The overall context here is that visual computing is going mainstream and obviously a GPU is an important part of making that happen.  Arguing the Nvidia versus Intel case is a waste of time if it weren’t for a history of somewhat anti-competitive behavior from Intel.

In short we are fairly certain that Nvidia will come out a winner from this trend.  After all they are the only company 100% focused on this market and it’s finally coming into it’s own.  Yes, we know, margins are a concern.  However we’ve made fairly conservative assumptions in coming up with our IV of $15.  The company also has generated very high returns on invested capital and sits with a large cash reserve.

In addition to the news out of Computex next week the company will be hosting their annual analyst meeting on June 16th.  It’s no wonder that volume on the June options has skyrocketed in recent days. We expect fairly large sums to be won and lost in the next few weeks as investors apply intense pressure to “figure it out.”

[Disclosure: Research 2.0 maintains a variety of positions in NVDA stock and options, both long and short. At the time of this writing they would be described as "net long in aggregate."]

It’s no secret that the GPU space has been heating up.  The Apple/Nvidia deal got the ball rolling and now Intel, Nvidia and AMD/ATI are in a fight to lock up design wins in the next generation (or two) of devices. 

A few things are driving this including:

1. More graphics processing needed in mobile Internet devices.  Video and graphics are more important than crunching spreadsheets.
2. Interfaces are becoming more complex.  It’s been on the roadmap for 20 years or so but more game-like UI features will dominate the client going forward.  Much as basic windowing systems took over back in the late 1980′s and 1990′s. 
3. Software libraries have made it easier to take advantage of the GPU for some more general purpose processing. This is both a top-down and bottom-up movement.  The GPGPU idea is here to stay.

That Intel may be in the PS4 (if there is such a thing) could happen.  The new Intel chip is positioned at the high end but most of the units, and possibly profits will be in the low to mid-range where Nvidia (with Tesla and Tegra) appears to be in a good position.

Nvidia as a company and the NVDA stock are in the midst of a huge transition from high-end, expensive add-in cards to chipsets and mobile solutions.    We expect Nvidia to emerge as a leader in this category. It won’t come without any bumps although guidance already reflects a fairly steep falloff in their traditional business.

Our fairly conservative estimate for fair or "intrinsic value" comes to $15 which makes the stock attractive at these levels.  Full details can be found in our recently published 5 page client report ($pdf) discussing the changing client architecture with implications for Intel, ARM and Nvidia. 

[Disclosure: Research 2.0 has a long position in NVDA and ARM at the time of this writing.]