Annual ReporT ‘04 T T Lions Gate enters fiscal 2005 with Moitsion trademark Pic slateures. of approximately 15 star-driven theatri- cal releases combining commercial box office firepower and great potential for critical recognition. Lions Gate Films plays to its strengths with a balanced mix of in-house productions and acquisitions. We have planned a fiscal 2005 slate that includes approximately eight specialty films, four genre pictures, franchise films with partners like Marvel and about four teen and urban comedies. The Company maximizes revenue by retaining rights in most media wherever appropriate, although its international team typically presells foreign rights to cover approximately 75 percent of production costs and minimize risk. By owning a high proportion of rights, Lions Gate has been able to capi- talize on revenues for its theatrical releases from the DVD revolution and its highly competitive output agreement with Showtime. During the past year, Lions Gate earned four Academy Award௣ nominations for THE GIRL WITH A PEARL EARRING and THE COOLER, giving the Company 17 Oscar௣ nomination nods in six years, more than any other independent studio. This year, Lions Gate enters awards season in particularly strong shape with Michael Moore’s incendiary Palme d’Or- winning documentary FAHRENHEIT 9/11, STAGE BEAUTY, starring Billy Crudup, Claire Danes and Rupert Everett, BEYOND THE SEA, featuring perennial Oscar contender Kevin Spacey and Kate Bosworth, and FIERCE PEOPLE, starring Diane Lane and Donald Sutherland, all positioned to be award contenders. The Lions Gate logo won applause from audiences across America this year with the remarkable success story of FAHRENHEIT 9/11. Lions Gate Films, with its codistributor IFC Films, released it nationwide on June 25, 2004, a mere three weeks after securing distribution rights, and the film rewrote the record books, becoming the highest-grossing documentary of all time (outgrossing the previous top 10 non-concert, non-Imax, non-compilation documentaries combined), captur- ing tremendous critical acclaim and achieving more than $100 million at the North American box office by midsummer. The Company also continues to build a powerful position in the horror/thriller genre, achieving hits with fiscal 2004’s CABIN FEVER and HOUSE OF 1000 CORPSES and featuring an upcoming slate that includes the eagerly-anticipated shark thriller OPEN WATER, the terrifying SAW, THE DEVIL’S REJECTS, Rob Zombie’s follow-up to his instant cult classic HOUSE OF 1000 CORPSES, the French horror/thriller HAUTE TENSION and FLIGHT OF THE DEAD. Lions Gate is also cementing its position in the urban film genre, following up releases such as THE WASH and STATE PROPERTY with the Labor Day release of THE COOKOUT, starring Queen Latifah and a strong ensemble cast, and Tyler Perry’s heartwarming comedy DIARY OF A MAD BLACK WOMAN. Lions Gate’s reputation for bold, daring and provocative material and its willingness to allow creative talent to expand their repertoire in films positioned for both com- mercial and critical success has helped attract an A-list roster of stars including Robert DeNiro, Halle Berry, Nicole Kidman, Robin Williams, Kevin Spacey, Diane Lane and Queen Latifah. ME T is a major growth engine Ho of LionsEn Gate’sertainment business model. Fueled by 50% DVD penetra- tion of consumer households and a $25 billion-plus world- wide market, Lions Gate’s home video operations are expected to generate more than $400 million in revenues in fiscal 2005. In addition to approximately 15 theatrical features, Lions Gate Home Entertainment will release 84 direct-to-video titles, an additional 83 titles from the Company’s televi- sion, family entertainment and fitness businesses, and more than 500 catalog promotions for a remarkable total of more than 700 titles during the upcoming year. These titles are expected to move over 60 million units of video and DVD discs in fiscal 2005—major studio-sized numbers achieved within the overhead structure and entrepreneurial culture of a true independent. Home video revenues can typically equal two or more times the Company’s theatrical box office rentals on a given title, providing a major revenue stream during fiscal 2004 for feature films such as CABIN FEVER, HOUSE OF 1000 CORPSES, CONFIDENCE, WONDERLAND and HOUSE OF THE DEAD. Lions Gate’s relatively large number of wide theatrical releases from the makers of THE ENDLESS SUMMER “Insanely gorgeous in hypnotic gradations of aquamarine...will send you into a dream state” – Elvis Mitchell, The New York Times No special effects No stuntmen No stereotypes No other feeling comes close from the makers of THE ENDLESS SUMMER “Insanely gorgeous in hypnotic gradations of aquamarine...will send you into a dream state” – Elvis Mitchell, The New York Times No special effects No stuntmen No stereotypes No other feeling comes close in late fiscal 2004 and early fiscal 2005 will catalyze its fiscal 2005 DVD slate, with commercial titles such as THE PUNISHER, GODSEND and DIRTY DANCING: HAVANA NIGHTS scheduled to join THE GIRL WITH A PEARL EARRING, THE COOLER, OPEN WATER and THE COOKOUT as likely high-impact performers at video and retail outlets during the year. The recent television-to-video boom, which makes up approxi- mately 10% of all DVD sales and is the fastest-growing seg- ment of the DVD market, has added another dimension to Lions Gate Home Entertainment. The NBC comedy smash WILL AND GRACE: SEASON 3 is poised to join WILL AND GRACE: SEASONS 1 and 2, titles from NBC’s SATURDAY NIGHT LIVE franchise and Lions Gate Television’s own THE DEAD ZONE as best-sellers. Lions Gate Home Entertainment is recognized as an innovator in the creation of DVD special features, collectible packag- ing and exploitation of new technologies, winning the 2003 Microsoft Innovator of the Year award. DVD special features for catalog cult classics such as RESERVOIR DOGS, THE KING OF NEW YORK and ANGEL HEART add further luster to a home video powerhouse that ranks first behind those of the major studios. H ME Lions Gate FaFamily m i l Y Home o EntertainmentEnT ertainment.(FHE) has one of the industry’s hottest slates of A-list talent—BARBIE, HOT WHEELS, CLIFFORD THE BIG RED DOG, CARE BEARS, INSPECTOR GADGET, ARTHUR, and THE AVENGERS, featuring CAPTAIN AMERICA, THE HULK, THOR and IRON MAN. Powered by this roster of family entertainment icons, FHE combines one of the most sophisticated sales, marketing and distribution infrastructures in the industry with the entre- preneurial agility and independent spirit of Lions Gate’s other businesses. FHE is one of the five largest family home video distribu- tors in North America. The division continues to attract new premium properties that will help grow its 6%-plus market share in one of the most vibrant segments of today’s enter- tainment industry. The children’s DVD market is achieving explosive growth. Children’s DVD shipments are expected to increase from 176 million in 2003 to 476 million by 2007. The children’s non- theatrical genre is projected to increase 47% during this same four-year period. The division acquired North American home entertainment rights to Mattel’s fourth full-length feature BARBIE AS THE PRINCESS AND THE PAUPER, scheduled for release in September 2004. The direct-to-video star has achieved evergreen status, selling more than 10 million units across the first three titles. Working with another blue-chip partner, Lions Gate announced a landmark deal with Marvel Enterprises to develop, produce and distribute up to eight original animated made-for-DVD features based on characters within the Marvel universe. The agreement will kick off with THE AVENGERS, with the storied superheroes due in stores in early 2006. FHE also extended Scholastic’s CLIFFORD THE BIG RED DOG franchise and acquired the hit PBS series CLIFFORD’S PUPPY DAYS; teamed up with DIC Entertainment and Mainframe Entertainment for an all-new direct-to-video INSPECTOR GADGET CGI animated special; is co-producing the first feature-length, direct-to-video film based on the popular children’s character ARTHUR, set to hit stores in 2006; will be distributing the first new CARE BEARS movie in 15 years as well as the Nickelodeon series MISS SPIDER’S SUNNY PATCH KIDS in 2006. continued to build its leadership in market seg- Televisionments outside the realm of the major studios, producing and delivering cost-efficient one-hour dramas, television movies and miniseries to cable networks hungry for the edgy, origi- nal programming that has become a Lions Gate trademark. Lions Gate’s two cable television series, THE DEAD ZONE and MISSING, performed strongly in their new seasons. THE DEAD ZONE, starring Anthony Michael Hall and hailed as the best adaptation of a Stephen King work to the screen, attracted nearly four million viewers to some of the early episodes of its third season on USA Network. MISSING, revitalized by vivacious new lead Vivica A. Fox, began its second season on Lifetime Network in July 2004. Both of these series have generated profits from day one. Lions Gate has already produced 45 episodes of THE DEAD ZONE in conjunction with Paramount International Television and USA Network and anticipates that, if it continues on its current path, the series will be renewed for a fourth season and will become a solidly syndicatable show. Lions Gate continued to strengthen its relationships with major cable networks during the year with a steady supply of topical television movies and miniseries featuring high A LIFETIME ORIGINAL KIM DELANEY KYLE SECOR CRISTIÁN DE LA production values at relatively low cost. Lions Gate Tele- vision delivered INFIDELITY and BABY FOR SALE to Lifetime Network, BRAVE NEW GIRL, produced by Britney Spears and based on a book cowritten by the pop superstar and her mother, to ABC Family, and the critically-acclaimed thriller miniseries FIVE DAYS TO MIDNIGHT to the Sci-Fi Network.