Moviegoers, your attention please. Please turn off all cell phones and refrain from smoking in the theatre. Now that you've settled down with your popcorn and soda, let's see what the storyline is for Lions Gate's (NYSE:LGF) fourth-quarter and end-of-year earnings report, making its debut Thursday.

What analysts say:

  • Buy, sell, or waffle? Eighteen analysts follow Lions Gate, with 12 rating it a strong buy or buy, five a hold, and one a sell.
  • Revenues. The movie producer and distributor's revenues are expected to rise about 9% year over year.
  • Earnings. And profits are expected to rise 48%, to $0.31 a share.

What management says:
In the last earnings release, CEO Jon Feltheimer commented that while operating performance remained strong, the full impact of recent successes at the box office -- like Hostel and Saw II -- will only appear in the next one or two quarters. Interestingly enough, this is one movie exec that appears to get it, since he further comments that the industry is going through an "inflection point" with regards to technology, and consequently is experiencing softness in the home entertainment and direct to video segments of the business. This wasn't just about PR talk -- Lions Gate was one of the earlier ones to the content-on-demand game with CinemaNow, which was launched in 2004 with download-to-own capabilities and now has a library of more than 5,000 titles.

What management does:
The company's results over the past five quarters have been predictably lumpy; after all, the movie business is a hit-or-miss world. However, this edgy independent movie producer has several good franchises: The Punisher, the Saw series, and even a Best Oscar winner with Crash. More recent hits like Hostel and Tyler Perry's Madea's Family Reunion offer several good opportunities for new franchises. With an innovative partnership with Starbucks (NASDAQ:SBUX) for Akeelah and the Bee, it is clear that management has not been resting on their laurels of its big Oscar win.

Quarterly Margins %

12/04

3/05

6/05

9/05

12/05

Op.

5.9

14

(9.1)

(4.6)

3.2

Net

1.8

8.6

(11.2)

(6.6)

1.3

*Data from MSN's MoneyCentral

One Fool says:
I admit, I've always enjoyed watching movies from "indie" studios. Some of my favorite include Pi, Delicatessen, and Heathers. However, the business model for these producers is undergoing substantial change right now, and Lions Gate's CinemaNow, while fairly early to the game, doesn't look too promising.

Being forced to watch the content while crowded around a 15" or 17" computer screen doesn't exactly scream "family fun night." Indeed, the fact that burning a movie onto DVD for watching on the TV screen is a "no-no" makes me wonder if CEO Feltheimer really does get it. Heck, I think the fact that the company expects people to sit through an hour and a half download on a fast connection to watch an hour and a half movie seems kind of ridiculous. Lions Gate's FAQ for the service on the website is just one big list of "no-nos," further shooting down the possibility of downloading movies to iPods and PSPs, for instance.

It's a good thing that Lions Gate is doing so well at the box office, because its online efforts at previewing the future of the industry look not-so-edgy. In tomorrow's report, look for continued box office performance and the realized effects of past successful films, and hopefully some disclosure on whether the company has been able to better integrate CinemaNow with the home theatre environment.

Competitors:

  • DreamWorks Animation (NYSE:DWA)
  • Disney (NYSE:DIS)
  • Marvel (NASDAQ:MVL)
  • Sony (NYSE:SNE)

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Stephen Ellis' user profile is here. He does not own shares in any companies mentioned.