Extended focus: Jon Feltheimer, the L.A.-based chief executive of Lions Gate Entertainment, likes the flexibility that comes with operating a smaller studio. (People).

It was a good year for Lions Gate Entertainment, starting with the critical success of "Monster's Ball" and finishing with the elimination of an unsuccessful production deal with Mandalay Entertainment. Chief Executive Jon Feltheimer also has been getting the Canadian company's financial house in order by using cash flow to pare down debt.

Since joining Lions Gate from Columbia TriStar Television Group in 2000, the locally based Feltheimer has attracted top-tier investors such as Microsoft co-founder Paul Allen's Vulcan Ventures, as well as arranged a $200 million credit facility from a syndicate of banks led by Chase Securities.

Question: As a smaller company how do you compete with the big studios?

Answer: You don't really--you try to find the business that they're ignoring. It's the golden crumb theory. We're under the table while Midas is counting his gold, and Midas doesn't have time for the little chunks and nuggets. He's just counting those big bars, so we're under there catching the nuggets.

Q: So it's finding a niche?

A: As you look through the history of our business, the growth has always come from companies that have found a niche. Entrepreneurial people and entrepreneurial companies always seem to create the most value.

Q: Are you tempted to go for the big, expensive movie every once in a while?

A: Coming out of the television business, you have a different mindset. I'm not dying to make a $100 million movie. It means nothing to me. I like creating a business, which is a big library throwing off recurring cash flow. Producing 100 television episodes, not just 22 of the biggest most expensive ones, is creating a consistent, diversified business. For the studios to pay attention to a film that may only make $5 million to $10 million is almost impossible--they just can't do it. But we can, and we can make a specialty out of it.

Q: Do you get any special benefits as a Canadian company?

A: It depends on which production you're talking about. If we shoot in Canada, we get labor credits. In some international productions we benefit by being a Canadian company, others we benefit by having a studio in Canada. Each one is different.

Q: Are there drawbacks?

A: The flip side of being a Canadian company is there is a bit of a stigma with shareholders. It's not as sexy.

Q: Lions Gate recently ended a production deal with Peter Guber's Mandalay Entertainment. Why?

A: That deal was made before I came to the company, but the bottom line is that the Mandalay film business is primarily a big budget movie business, where most of the rights ultimately were going to be owned by other people. Lions Gate wasn't going to own much, if any, of the distribution rights to Mandalay Pictures. And our core focus is in building up our library, which has over 2,000 titles right now, and throws off a considerable amount of recurring cash flow.

Q: What is the core of your business?

A: Content creation and distribution. We consider ourselves a fully diversified across-all-media business. Doing pictures, doing television, where the major studios aren't focused. And even in our animation business it's the same thing--trying to figure out a place where we're not competing with the majors for that content and distribution business.

Q: Lion's Gate has a reputation for edgier films. How does that translate to the bottom line?

A: We're creating an opportunity for talent to do projects that are near and dear to them, that are controversial and are special, stories that are difficult to tell in an obvious commercial format And so everyone is willing to work for less and understands the formula, which is that we are not going to take huge risks going in but we will support them on the back end. Everyone made money on "Monster's Ball."

Q: How do you actually get the big stars to do a movie for less than their going rate?

A: My dad used to tell a story about how Frank Sinatra in his heyday signed with a manager nobody knew. And everybody said "Frank you could have had anybody, why did you sign with him?" He said nobody else asked. So, talent might have some material that they don't think the studios will do, or maybe you let them direct, or you just have something superior that you think they would really want to do. But you have to ask.

Q: Does that curry favor with the big stars?

A: When we were doing "Confidence," Dustin Hoffman went up to my partner, Michael Bums, and said, "By the way, who releases your pictures?" Well, we do. People didn't even understand that we are a fully diversified, fully distributed studio. So actors see we can take a picture and market it and distribute it to the right theatres and roll it out properly and then do an Academy Award campaign and they go, "Jeez, why shouldn't we work with this company? Why shouldn't we want this company to stay around and prosper?" And that's what you want, a kind of rooting interest in the creative community.

Q: Both "American Psycho" and "Rules of Attraction" were based on novels by Bret Easton Ellis. Does book buzz help?

A: Obviously, anytime you can have any built-in marketing it's certainly a more efficient exercise. So having a book that's been popular is the first step. Having a book that is a good story that touches a nerve in the population you're going to market it to--that's a good place to start. But at the end of the day we're not going to compete with the studios for the rights to huge books, and "Rules of Attraction," since it's more edgy, is something we could get our hands on.

Q: Are there benefits to being publicly traded?

A: As a small public company, you don't have as many of the advantages but you have all the disadvantages. Right now, it's a very difficult auditing environment. And there's no mediation when you deal with your auditor. Basically, they're the judge, jury and prosecuting attorney. It's a difficult environment to be a public company, with all the government scrutiny and board scrutiny.

Q: How does your development process differ from that of a major studio?

A: Development isn't that complicated, so the main difference is that studios are in development on hundreds of projects, and they're spending millions. We can't afford to do that and it's not our philosophy, so we tend to look for scripts that are available, that we can package with great talent, and can get made pretty quickly.

Q: How does your green lighting process work?

A: We have a meeting with virtually all the division heads once a week. All the people, the co-heads of international, our legal folks, our video people--everyone has input into what they can do with the picture.

Q: How has your film library performed?

A: This is a company with over 2,000 titles, and every year we're putting 100 new titles into it. You're creating real value there. I just don't think people focus on that very often, this library creation. But that's beachfront property.

Q: How do you keep that going?

A: Video-on-demand will be the next DVD revenue stream, no question about it.

Q: What kind of movies do you like?

A: I like any kind of a movie that is well made and has a good story with good acting. I've got a pretty wide range in film tastes.

Q: Anything you liked recently?

A: That's not my own movie? "Lord of the Rings: The Two Towers" I enjoyed a lot. But that's a perfect example of a picture we're not going to make.

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Jon Feltheimer

Title: Chief Executive Officer

Organization: Lions Gate Entertainment

Born: Brooklyn, N.Y., 1951

Education: Bachelor of Arts, economics, Washington University, St. Louis, 1973

Career Turning Point: Moving to Los Angeles to become a musician

Most Admired Person: Father

Personal: Married, three children