'Fahrenheit 9/11' puts spotlight on Lions Gate's success story.

THE box office success of Michael Moore's documentary "Fahrenheit 9/11" has generated plenty of free publicity for its co-distributor Lions Gate Entertainment Corp., whose shares have risen 11.7 percent in the past two months.

The film, which won the Palme d'Or at the Cannes Film Festival in May, has helped Lions Gate cement its status as one of the leading independent studios in Hollywood, building on the 2002 success of "Monster's Ball" and its December 2003 acquisition in December of Artisan Entertainment.

While analysts believe "Fahrenheit" could gross $100 million or more, an extraordinary showing for a documentary, it will have only a minor effect on Lions Gate's bottom line. The company gets a preset distribution fee and shares a small percentage of box office revenues. The more lucrative video/DVD distribution rights are owned by Bob and Harvey Weinstein of Walt Disney Co.'s Miramax Films Inc. unit.

Still, Matthew Harrigan, an analyst at Janco Partners Inc., estimates that "Fahrenheit" will add up to $11 million to Lions Gate's revenues for the fiscal year ending in March 2005.

Jon Feltheimer, Lions Gate's chief executive, told investors in a conference call last week that "Fahrenheit 9/11" had given the company "validation of the important role we play in this industry." He noted that many film-makers now perceive the company as "doing interesting, provocative projects."

Indeed, analysts believe that Lions Gate, dually based in Santa Monica and Vancouver, B.C., could become ah exception to the rise-and-fall pattern of independent film and TV producers.

Many have floundered after a major bit by trying to compete against larger studios. Among the casualties: Orion Pictures, Carolco and Trimark Holdings, which Lions Gate bought in 2000. Artisan, the distributor of "The Blair Witch Project," churned out a subsequent string of box office flops before its loss of direction led to the company's $199 million sale.

Lions Gate, on the other hand, has avoided losses on all but one of its last 29 movie releases, said Harrigan, who has a price target of $10 a share on the stock.

Moreover, the company has a roster of Blue Chip financial backers that include Capital Research and Management, the Los Angeles investment fund that owns 8.1 percent of total shares, Fidelity Management & Research Corp., 7.2 percent, and JP Morgan Chase & Co. President and Chief Operating Officer Jamie Dimon.

In the past year, Lions Gate's shares have risen by 267 percent, to $6.98 as of June 30. The company, whose stock trades on the American and Toronto stock exchanges, also plans to pare its $373 million debt load by $150 million over the next two to three years.

"The rapid improvement in the balance sheet and higher cash flow from the Artisan library could make aggressive production bets more tempting," Harrigan wrote in a research report.

Lions Gate's itself is something of a fix-it project.

Its current management came together at the behest of Gordon Crawford, an entertainment analyst and money manager at Capital Research, one of the firm's early investors. Michael Bums, a former managing director and head of Prudential Securities Inc.'s Los Angeles office, joined as vice chairman in 2000, and Feltheimer, the former executive vice president of Sony Pictures Entertainment, joined the same year.

With the acquisition of Artisan, Lions Gate has a library of 8,000 movie titles. Those generate enough revenue to cover the roughly $45 million in film and corporate overhead, analysts say.

Lions Gate has been releasing about 18 movies a year and acquires another 80 direct-to-video titles for $250,000 to $1 million per movie. Big-budget features are out of the question. "House of 1000 Corpses," which it acquired for $1 million, ultimately grossed $15 million domestically, while "Cabin Fever", purchased for $2.5 million, grossed $21 million.

Still, the Artisan acquisition put a major dent in earnings. Lions Gate reported a loss of $94.2 million for the year ended March 31, compared with a loss of $1.1 million a year earlier. Revenue rose 31 percent, to $384.9 million.

Staff reporter Kate Berry can be reached at [phone], ext. 228, or at [e-mail].

YEAR (March 31)                 2004      2003

Revenue (millions)            $384.9    $293.1
Total Expenses (millions)      474.9     279.8
Operating Income (millions)     (96)       3.3
Net Loss (millions)           (95.7)     (2.5)
Loss Per Share                (1.35)   ($0.06)

SUMMARY

Business: Film, television producer, distributor

Headquarters: Santa Monica and Vancouver

Chief Executive: Jon Feltheimer

Market Cap: $634.4 million

Dividend Yield: None

Total Liabilities: $665.9 million P/E

Ratio: N.A. *

Bank Debt: $324.7 million

* Company does not pay a dividend.