Lions Gate Wants to Be More Than an Independent Film House

VANCOUVER -- Alternative culture is all the rage these days. From hemp brew to vegetarian restaurants, today's consumers gravitate toward products of the natural, ethical and eclectic sort. It's not so much a case of fringe culture selling out, but rather mainstream tastes becoming more fickle and, in some cases, even sophisticated.

The trend is even apparent in Hollywood circles, as art-house movies -- once relegated to film festivals and home video -- now garner attention from critics and ticket-buyers alike. One needs to look no further than the Blair Witch Project phenomenon for proof.

Capitalizing on this flight to independent fare is Lions Gate Entertainment (LGF Quote), a Vancouver-based film and television company founded in 1997.

Investors have been slow to warm to the company. In recent times, shares have languished in the 2-to-3 range -- compared with a 52-week high of 4. But while the outfit's stock has yet to captivate Wall Street, Lions Gate is making a name for itself among the Tinseltown movie elite.

Through its distribution arm, Lions Gate Films, the company has brought the public a number of acclaimed movies, including the Academy Award-nominated Gods and Monsters and Affliction.

More recently, the company enjoyed substantial entertainment press by screening Dogma, a controversial take on Catholicism starring Ben Affleck and Matt Damon. Lions Gate picked up the movie after pressure from the American Catholic League forced the original distributor -- Walt Disney (DIS Quote) subsidiary Miramax Films -- to shy away from it. But the angry protests and boycotts directed against Dogma underscored the company's willingness to embrace the full spectrum of cinema.

For its efforts, the company was duly rewarded. Last week, the company announced that revenue for its motion picture operations had increased by more than 150% -- attributed in large part to Dogma's success.

Lions Gate Films is also set to release an in-house production, the equally eyebrow-raising American Psycho -- promising to deliver more publicity and profits.

"In the U.S, these films [Dogma and American Psycho] are very controversial," says Etan Vlessing, Canadian bureau chief for the Hollywood Reporter. "The studios, while they would like to have these films in distribution, would much rather not get involved." According to Vlessing, Lions Gate Entertainment believes its Canadian location shields it from the wrath of American interest groups.

The aforementioned silver screen offerings are bringing more than just revenues to the table. They're building the Lions Gate brand, one that Hollywood's major players are becoming increasingly aware of.

That much was evident this past January when the company announced a $33 million financing from a group led by Paul Allen's Vulcan Ventures, and including SBS Broadcasting S.A. (SBTV Quote) of Luxembourg, Tele-Muenchen Group of Germany and former Sony executive Jon Feltheimer.

"The new strategic investors will be important contributors to the growth of the company," says Roger Dent, analyst at Yorkton Securities. Dent, who rates Lions Gate a strong buy, has a 12-month target of C$6.50. Yorkton has done financing for Lions Gate Entertainment previously and the brokerage's former head, Frank Giustra, is Lions Gate's CEO.

The prevailing sentiment is that the company's impressive growth should eventually rub off on its stock.

"They're significantly undervalued," argues one analyst, who asked to go unnamed. "They're in a growth stage, but they've got their ducks in order. This is a content play that is going to develop a brand name, maintain its independent status and build a library of content while continuing to seek strategic partners."

Meanwhile, Paul Allen's ownership allows the company to tap into a strong network of influence. Vulcan Ventures also has stakes in Oxygen Media, wireless Internet provider Metricon and fiber-optics player RCN Corp. (RCNC Quote)

This all adds up to a bright future for the outfit. In addition to American Psycho, the spring lineup on tap is impressive, which includes The Big Kahuna, starring Kevin Spacey, and Shadow of the Vampire, starring John Malkovich.

But as Lions Gate Entertainment becomes the toast of the independent film community, it can only hope its fate doesn't parallel the storyline of one of its splashy flicks. A good many art films, after all, are known for their tragic endings, something Lions Gate wants no part of.