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IMAGE ENTERTAINMENT REPORTS THIRD-QUARTER RESULTS; CEO EXPECTS INCREASING REVENUES FROM EXCLUSIVE PROGRAMMING BEGINNING FOURTH QUARTER

 CHATSWORTH, Calif., Feb. 16 /PRNewswire/ -- Image Entertainment Inc. (NASDAQ-NMS: DISK) today reported a loss for the third quarter and nine months ended Dec. 31, 1992. Martin Greenwald, chairman and chief executive officer, said, "Third-quarter sales fell short of our record- breaking quarter a year ago, when we released our two all-time best sellers, 'Fantasia' and 'Dances with Wolves.' Nevertheless, sales for the nine months were up slightly, indicating continued demand in our base business despite the persistent recession and a difficult year for the electronic entertainment industry.
 "Despite the market, we have continued to pursue an aggressive product acquisition strategy. During the December quarter, we entered into an exclusive license agreement with New Line Home Video and an exclusive agreement with The Voyager Co. to distribute the critically acclaimed Criterion Collection, and extended our exclusive license agreement with Orion Home Video. These agreements will contribute to sales in the March quarter, and our margins should improve as exclusive product accounts for a greater percentage of sales."
 Third-Quarter Results
 Net sales for the quarter ended Dec. 31, 1992, were $16.6 million, down from $19.5 million in the same quarter a year ago. "While we are never satisfied with lower sales, we did not expect to surpass last year's record-revenue quarter when we released 'Fantasia' and 'Dances with Wolves,'" Greenwald said. "Together, these two titles accounted for more than $10 million in sales. It's clear that blockbuster releases can throw off our quarter-to-quarter comparisons, but our base business continues to grow."
 Gross profit margin for the quarter declined to 16.5 percent from 20.9 percent for the same quarter last year as the company saw a substantial increase in the percentage of net sales from lower-margin nonexclusive product. The effect of changes in the product mix was partially offset by lower per-unit manufacturing costs of exclusive product.
 Selling, general and administrative expenses were slightly higher than the same quarter a year ago, $2.0 million versus $1.9 million, reflecting growth in the company's sales force and higher personnel costs. However, cost-control measures implemented in August 1992 reduced selling, general and administrative expenses by 6.3 percent from $2.1 million in the September 1992 quarter. "At current sales levels we are very sensitive to changes in operating expenses," Greenwald said. "Going forward, we believe we can support significant sales growth without a commensurate increase in operating expenses."
 Amortization of production costs for the third quarter increased 26.2 percent to $903,000 from $716,000 a year ago. This reflects both the greater number of titles in production and the company's decision to accelerate amortization based on management's quarterly review of the sales pattern of exclusive product.
 The net loss for the quarter was $876,000, or 8 cents per share. In the third quarter of the prior year, the company reported net income of $861,000, or 6 cents per share.
 Nine-Month Results: Product Mix Is Key to Profitability
 Net sales for the nine months were $43.3 million, up 3 percent from $42.1 million for the same period a year ago. "Sales depend on the availability and popularity of new releases and the general economic environment," Greenwald said. "In 1992, a weak release schedule and the ongoing recession slowed sales growth."
 Nonexclusive product sales totalled $9.2 million for the nine months, or 21 percent of sales, compared with $1.1 million, or 3 percent of sales, for the same period in 1991. Margins were negatively affected by the increase in nonexclusive sales as a percentage of total sales. For the nine months, cost of laserdisc sales increased to $35.9 million, or 82.8 percent of sales, up from $32.9 million, or 78.2 percent, in 1991, reflecting the sales mix shift.
 "We believe that to be the primary laserdisc supplier for retail customers, we must provide a broad range of programming," Greenwald said. "Therefore, in conjunction with our November 1991 financing, we announced plans to expand
nonexclusive wholesale distribution activities. We have been quite successful in these efforts. However, as expected, nonexclusive product generates lower margins.
 "Gross margin was also affected by a drop in exclusive product sales during the three quarters. Exclusive product sales declined due to a weaker release schedule and the expiration of the title-selection periods under license agreements with certain suppliers. However, the recent agreements with New Line and Voyager significantly strengthen our exclusive product line going forward."
 For the nine months, selling, general and administrative expenses were $6.1 million, compared with $5.2 million for the prior-year period, reflecting expanded marketing efforts, increased personnel costs and higher professional fees. Interest expense increased to $1.9 million from $1.4 million for the prior-year period as a result of increased indebtedness and the higher effective interest rate on that indebtedness. In addition, amortization of production costs increased to $2.3 million, from $2.2 million, as a result of more titles in production and accelerated amortization.
 For the nine months, the company reported a net loss of $3.2 million, or 27 cents per share. For the same period in 1991, the company reported net income of $180,000, or 1 cent per share.
 Recent Developments
 In November, Image entered into a multi-year distribution agreement with The Voyager Co., obtaining exclusive distribution rights for the popular, high-quality Criterion Collection line and nonexclusive worldwide distribution rights for nontheatrical releases. Over the next several months, Image expects to release special editions of "The Player," "Howard's End," "A Few Good Men" and "Bram Stoker's Dracula" under the Criterion label.
 In December, the company and Orion Home Video agreed to extend their exclusive license agreement through December 1995. During 1992, few titles were available from Orion due to its bankruptcy proceedings. However, this agreement will allow Image to release all of Orion's new theatrical output.
 Also in December, the company entered into a five-year exclusive license agreement with New Line Home Video, a leading independent producer, and an exclusive license agreement with Sultan Entertainment, formerly Nelson Entertainment, obtaining rights to Sultan and selected Castle Rock Entertainment titles. During the fourth quarter, Image expects to release "Honeymoon in Vegas," "Mr. Saturday Night" and "The Player" on laserdisc.
 In addition to the above titles, the release schedule for the next several months is broad based and includes the Walt Disney classic "Pinocchio," Fox's hit "The Last of the Mohicans," and a special edition of Fox's "The Abyss."
 "Under these recent long-term agreements, we have made and are required to make substantial advances and other payments," Greenwald said. "To help us fully exploit our new agreements, our largest shareholders, John Kluge and Stuart Subotnick, through their wholly owned Image Investors Co., privately purchased in December an additional 425,000 shares at $6 per share, a $2.55 million investment.
 "Our new exclusive agreements, upcoming releases, December capital infusion, and installation of an automated warehouse picking system, will allow us to handle larger volume and enable us to capitalize on market growth and maintain our industry leadership position in the long term," Greenwald concluded.
 Image Entertainment has an estimated 35 percent of the domestic laserdisc software market and the most extensive library of titles. In addition, Image has exclusive licensing and distribution agreements with some of the most important suppliers of movies, music videos and specialty programming, including Disney's Buena Vista Home Video, FoxVideo, Playboy Home Video and Turner Home Video. The company's common stock trades on the NASDAQ National Market System under the symbol DISK.
 -0- 2/16/93
 /CONTACT: Cheryl Lee, Esq., of Image Entertainment, 818-407-9100, ext. 256; or Lise Needham of the Financial Relations Board, 415-986-1591, for Image Entertainment/
 (DISK)


CO: Image Entertainment Inc. ST: California IN: ENT SU: ERN

TM-MA -- SF006 -- 6738 02/16/93 09:08 EST
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Date:Feb 16, 1993
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