Entertaining propositions: with his company's future hanging in the balance due to an unresolved takeover attempt, David Borshell helps Image Entertainment explore opportunities for growth.

David Borshell steps into the room that could be considered the heart of Image Entertainment.

That room contains the boxes holding the 3,000 titles the Chatsworth company licenses to distribute on DVD and when potential clients are taken on a tour of the facility it is the one room that means something to them.

"They look at their projects as being the Hope Diamond," said Borshell, the chief operating officer of the distribution company. "You want them to feel that their Hope Diamond is being protected."

But if the Image library represents protection it also represents opportunity, as in those 3,000 titles coveted by Lionsgate Entertainment in its takeover attempt of the company.

Lionsgate, one of the largest shareholders in Image, attempted a buyout last year that was turned down by Image's board of directors.

Earlier this year, investment banking firm Lazard Freres and Co. was brought on board by Image to examine all strategic and financial opportunities and the company maintains a Special Committee set up to review the Lionsgate offer and any future offers.

The issue comes to a head at the company shareholders meeting in October at which Lionsgate has put up its own slate of board of director candidates.

While all that drama unfolds, the former laserdisc distributor moves ahead in continuing to maintain a high-profile presence with HD DVD titles to be released this year and a recent agreement with Relativity Media to release feature film titles on all home video and digital formats.

Relativity financed, co-produced or executive produced "Talladega Nights," "RV," and "Inside Man."

Question: What is the atmosphere at Image like since the Lionsgate issue remains unresolved?

Answer: We're coming up on the one year anniversary since Lionsgate went public in the acquisition of approximately 20 percent of the outstanding shares. Various events have occurred over the past 12 months. From a business perspective we've been able to operate as usual. From a management perspective we've been able to operate as normal as usual. I think for sure below management, more of the rank and file employees, feel some level of insecurity as this process continues.

Q: Are there certain advantages and certain functions Image can do better as an independent company than it could do being part of a larger company?

A: That's a two-part question. As it pertains to Lionsgate, it's our understanding that we are a consolidation play for Lionsgate. Everything we've built up over 24 years would no longer exist and just be folded into a larger organization and they might handpick a few individuals to support their going forward. An Image-Lionsgate consolidation would not call for Image to be an ongoing entity on its own. Outside of Lionsgate, any other opportunities that come up, we clearly see ourselves as an independent that could bring a lot of value not only in product but in employees and infrastructure if we are allowed to stay intact.

Q: Where does Image stand in relation to other companies in home entertainment distribution.

A: The home video industry is $20 billion in North America. The studios represent 90 percent of that. So the balance of the business is done by 200 independent companies out there. We believe we are the largest of those independents. I think we are one of the only public entities among the independents in the home entertainment field doing in excess of $100 million in revenue.

Q: Tell us about the Relativity deal and what that means for the company.

A: Relativity is a total departure from what we have grown up developing and acquiring as a product line over the past 20 plus years. We've always prided ourselves on the infrastructure that we've developed over here. As a company we have internalized every aspect of the business with the exception of replication and printing. From a non-product perspective we see ourselves as having built this business to one day to be able to control higher profile programming. The Relativity deal is exactly that. It is our type of product on a multiple steroid level. While we've dabbled in some feature films over the past few years being able to control and distribute on an exclusive basis on the same level as the major studios, we feel it is our time.

Q: Will that require additional employees or expansion of facilities?

A: We're not planning on any expansion of facilities right at the moment. It will clearly call for reorganization on the employee side. There will be some additional people coming in. But the infrastructure is there, it's more of an aspect of adding a few key pieces to the puzzle that we don't have that are directly related to the selling and potentially marketing of feature films. The customer base is all in place, the sales people are all in place.

Q: Any thoughts on all the talk about the collapse of the window between theatrical release and home video release?

A: Since we are not participating in the theatrical side and are not affected by the financial ramification of having our own money involved we obviously would hope that a title we are exclusively distributing is successful at the box office. If for some reason it's not and the window is closed in order to bring the home video out, it certainly puts more pressure on us to go out there and do a better job of selling it and help our partners generate additional revenue they didn't potentially recognize on the theatrical side.

Q: Image does primarily distribution but does it also do any production on its own?

A: We're certainly known as a distribution entity. But since 1999 we have been producing our own shows, primarily in the music field, producing long-form music concerts. The past few years we've been producing our own comedy specials and producing or co-producing our own feature films. We don't sit back and wait for somebody to deliver us a finished master. We're actually out there finding product, making product ultimately for exclusive distribution.

Q: Overall how is the home entertainment market?

A: It is all about DVDs. The industry has enjoyed from 1997 to 2004, 2005 very robust sales, escalating revenue increases but recently in the past six to 12 months there has been a slowdown. Feature film business while strong a lot of the films that have come out of the studios have not been as strong as in the past. Consumer penetration of household DVD players is hitting critical mass in 70 percent, 80 percent. Consumers are not buying as many DVD players as they were before. Retail has clearly had its challenges over the past several years. The mall-based stores have had a difficult time in the face of the growth of the mass merchants of the world. All leading up to in January with Musicland, a 900-store chain, filing for bankruptcy and then most recently Tower Records filing for bankruptcy.

Q: What are some non-traditional retailers Image uses?

A: Hot Topics. Guitar Center. Footlocker. The challenge is you have to find a way to keep titles active, find a way to sell them and market them. We have a line of Bruce Brown surfing films. You got to get those into surf stores across the country. You just can't rely on your traditional retailer.

Snapshot 

David Borshell

title: Chief Operating Officer

Born: 1964, Chicago

Education: 1982-1986; California State University, Northridge 

Career Turning Point: After working part time at Image throughout college, I made the decision to leave school after 4 years in order to pursue (and take advantage of) a full-time position. I'm employee number 5 and twenty four years later still with the company.

Personal: Married with two sons.

BY MARK R. MADLER Staff Reporter