Cinedigm (NASDAQ:CIDM) is a Chinese-controlled Hollywood studio with an independent film library, a good deal of debt and a subpar track record. But a week ago the CEO, Chris McGurk, made a three-sentence tweet about Cinedigm’s potential move into NFTs (non-fungible tokens). NFTs have been all the rage recently as assets that can be tokenized. This pushed CIDM stock to a recent closing high of $1.92. Since then, the stock has dropped back down to $1.36.
NFTs are hot right now, but the problem is, Cinedigm’s library of films probably just isn’t worth that much if made into NFTs. I could easily be wrong about this, but my gut feeling is that the film companies with the most value in terms of NFTs are those with the most valuable film libraries period.
Cinedigm’s Tweet About NFTs
In the last nine months ending Dec. 31, 2020, Cinedigm lost $17 million in free cash flow (FCF). This was much worse than the previous nine months, when it made $5 million in FCF.
As a result, the company now has just $26 million in the bank. If it keeps losing money like that over the next year, it will either have to raise debt, equity or else see its cash balance drop further.
So, no wonder, on March 24, the CEO decided to make a vague tweet about potential NFT assets. Here is the core of what he said, according to the SEC filing on March 24:
“….Given our extensive film library, deep connection to fandom and collectibles, and $CIDM’s strong brand partnerships and technology capabilities, I have directed our product team to develop new NFT products to enhance the user experience of our loyal audiences. To be clear, these new #NFT initiatives are to support our core mission: creating great streaming channel and content experiences for our passionate user base…”
The CEO said more would come (apparently a reference to more details about potential NFT assets).
As it stands now, there really is no easy and clear way to tell what an NFT is worth. In fact, frankly, to sell an NFT is the Wild West. Given that CIDM stock has a $225 million market capitalization, I wonder how much the value of those NFTs really will turn out to be.
But hey. Let’s see what the CEO says about this in the future, as he promised. Maybe the company, with some luck, can use its potential NFT assets to back another capital raise. Last quarter it raised money at 65 cents per share. Keep in mind that it will have to create the non-fungible tokens from its film library, secure them and make them available for purchase. That is going to cost some money.
What To Do With CIDM Stock
The rising of NFTs reminds me of the early days of the internet, when every company had to think about setting up its own website and decide how it was going to do business online. With this new technology, companies all over the world are going to tokenize their unique assets, especially those in the arts, including music. They will similarly have to decide how to commercialize their NFTs.
Cinedigm might be at the forefront of this movement if they can decide how to digitalize into tokens their film library. This essentially provides a digital blockchain provenance to the ownership by Cinedigm of a particular film or digital asset.
Then, depending on what that provenance is worth, the company can potentially raise capital or sell those assets.
Good luck, Cinedigm. Maybe this will help your company become profitable and/or raise the capital it needs. But until there is more clarity about what Cinedigm’s NFTs are really worth, I suggest most investors might stay away.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
