Lions Gate (NYSE:LGF) reported some Oscar-quality earnings last night. Were there any surprise nominations? Let's take a look.

FY 2006 revenues of $951 million far exeeded analysts' expected $898 million. Net income plummeted this year, down by 70% from last year. The hit was driven by increased marketing and general and administrative expenses, probably because of higher-than-expected promotion on movies and television properties. While the net income line is important, in this case, the real story was the cash flow, which gives a better picture of how the company is performing. Free cash flow came in at about $102 million, much better than the $6 million in accounting profits.

Overall, management seems to be conservative in its forward guidance -- estimating revenues "above $900 million" and free cash flow at about $85 million for FY 2007. The big jump is in pre-tax earnings, which are expected to roughly quadruple this year's numbers at $32 million. Given the economics of the business, earnings are expected to grow over time to match free cash flow.

Investment-wise, Lions Gate may look expensive on an EBITDA-multiple basis when compared to industry peers like Disney (NYSE:DIS) and DreamWorks Animation (NYSE:DWA), or even Marvel (NYSE:MVL). However, this ignores the investment value of the Lions Gate film library. This library threw off roughly $70 million in free cash flow in 2006 and generated a cash flow margin of 35% -- gaudy numbers, to be sure. The company's film library generated roughly 70% of the $102 million in free cash flow for fiscal year 2006 on revenues of roughly $200 million. The other $750 million in revenues comprised the television, theatrical, and video businesses, which only generated about $32 million in free cash flow in 2006.

What makes Lions Gate even more enticing is the recent deal to acquire television and DVD rights to Studio Canal's 2,000-film library, which includes some of the great French classics by Jean Renoir. However, the film library aside, the rest of the business isn't adding too much to the bottom line.

However, there may be some Oscar suspense in store for shareholders. Carl Icahn, the famed activist manager, has snapped up roughly 4% stake in the company earlier this year. In the conference call Thursday, management commented that they had a number of conversations with Icahn, mostly centering on the value of the film library that Lions Gate controls.

Does this mean that this Fool sees value in Lions Gate shares? I'm no Carl Icahn, but I can see how the story may play out. The library may be worth $600 million to $700 million alone, leaving roughly $500 million in enterprise value for the remaining businesses -- theater, television, and video. If Lions Gate can continue developing some hit franchises (which is always difficult in the movie business), it's reasonable to expect that non-library earnings will start to add to the bottom line in a more material fashion, which could further unlock value in the shares.

I'm intrigued by Lions Gate, but not quite convinced at this point. Investors would do well to keep a close eye on the company to see how it continues to develop its library, since that's its key value driver for now.

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Fool contributor Stephen Ellis' holdings can be viewed here. He doesn't own shares in any companies mentioned. Fool disclosure rules are here.