Lions Gate Entertainment Corp.'s purchase of the TV Guide Network may not be a perfect match for the studio, but given the acquisition's price, it makes great financial sense.

On Jan. 5, Lions Gate announced that it would buy two parts of TV Guide's disintegrating empire. For $255 million a good deal, if profits max out the company will take possession of TV Guide Network, a cable channel with 83 million subscribers, and the TVGuide.com Web site.

The channel shows a scrolling guide at the bottom of the screen, with entertainment-related shows such as "American Idol Rewind" above.

"We see a channel that we can grow significantly through a mix of programming, marketing and PR," said Jon Feltheimer, chief executive at the Santa Monica offices of Lions Gate, which has dual headquarters there and in Vancouver, Canada. "It will have more entertainment programming, more original shows than elsewhere."

Feltheimer declined to say exactly what will be shown on the channel, but he pledged to "bring all of our assets to bear on this project."

That would mean, like other channels, TV Guide could serve up movies and television shows in addition to its current diet of entertainment-related programming.

But the channel skews toward a female demographic, which is an issue: Lions Gate's film library of 8,000 movies includes its hits, the "Saw" horror franchise, "Punisher," "My Bloody Valentine 3D" and "Crank." Not exactly chick flicks.

Feltheimer suggested he would stick with female-friendly content on the channel, even though films such as the Renee Zellweger vehicle "New in Town" haven't been the studio's strongest performers at the box office.

Ryan O'Hara, president of TV Guide, said that his channel specifically targets women 35 to 54. "We think we can grow market share in that direction and skew younger over time."

O'Hara also noted that the channel's advertisers, mostly consumer goods brands, were comfortable with the female audience.

The studio's library also boasts 4,000 television episodes, including "Mad Men" and "Weeds," currently showing on AMC and Showtime, respectively. While those two shows are under contract to their respective channels and won't move as a result, future Lions Gate productions could likely run on TV Guide.

Entertainment news will likely be comparable to what's shown on the E Entertainment Channel, owned by Viacom Inc.; "Entertainment Tonight," owned by CBS Corp.; and "Access Hollywood," owned by NBC Universal Inc.

Lions Gate hopes to use the new channel to advertise its films, just as the other studios use their shows as marketing platforms.

"By buying the TV Guide Network, they have a way to promote their own product. It's incredibly smart," said Andy Meyers, a former producer on "Entertainment Tonight" and currently owner of video production house M3 Television in Burbank. "The question is where is the niche for them? 'Entertainment Tonight' has the older set, 'Access Hollywood' has the younger niche. So what can TV Guide do differently?"

Financially, the new channel will contribute $30 million to $40 million to Lions Gate's 2010 earnings, according to an estimate by James Marsh, an analyst with Piper Jaffray in Minneapolis. Media companies usually sell for about 8.5 times earnings, and that's what Lions Gate paid if the new channel brings in earnings of $30 million. But the $255 million price tag is a steal if earnings are $40 million, which would be 6.4 times earnings.

Marsh maintains a "buy" recommendation for Lions Gate, with a 12-month target price of $12 per share, well above the high $5 range where it currently trades. Thirteen of the 15 analysts who follow Lions Gate give it a "buy" rating, with an average price target of $10.39, according to Bloomberg.

Lions Gate bought the TV Guide channel from Macrovision Inc., a Silicon Valley company that acquired Gemstar-TV Guide Inc. in December 2007 for approximately $2.8 billion. Macrovision sold the TV Guide magazine to L.A.-based OpenGate Capital for a token payment of $1 in June. Macrovision retains the TV listing software and technology formerly owned by Gemstar-TV Guide.

Feltheimer believes that the TV Guide acquisition will eventually bring some much needed jobs to the L.A. entertainment sector. He noted that ReelzChannel, an entertainment-focused cable company, is moving from Los Angeles to Arizona.

"As we grow the channel, I expect the original programming will employ a lot of people," he said. "When you grow an asset here in Los Angeles, it should benefit the whole economy and we certainly intend to do that."

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