Lionsgate (LGF) has now produced two hits in a row. The Expendables, starring Sylvester Stallone, was third over the past weekend at domestic theaters, according to early estimates at Box Office Mojo. After completing its third weekend in the marketplace, the movie has generated over $80 million so far in total. Not bad, although it must take in more dollars to break even, as I mentioned last week.

More impressively, The Last Exorcism nabbed the top spot. It captured $21.3 million over the last three days. At the time of this writing, though, the second-place film, Sony's (SNE) Takers, was credited with an even $21 million. Once final figures are available later on, it's possible the rankings could change.

Lionsgate (LGF) continued its reign at the domestic multiplex. Last weekend, the studio was No. 1 with The Expendables. This past weekend, the film was popular enough to repeat the feat, taking in $16 million, according to estimates from Box Office Mojo. The project has grossed well over $60 million so far.

News Corp.'s (NWS) Vampires Suck, Sony's (SNE) Eat Pray Love, and Time Warner's (TWX) Lottery Ticket just couldn't keep up with the action flick. The first two movies grossed about $12 million each, while Ticket took in around $11 million.

Analyst Upgrades

• UBS upgraded UPS (UPS) and FedEx (FDX) to buy from hold based on recent weakness and leverage to a recovery. The firm raised its price target on UPS to $74 from $72 and on FedEx to $100 from $97.
• Bernstein upgraded Medicis (MRX) to outperform from market perform based on valuation and said the company has been executing well over the past few months. The firm has a $28 price target on the stock.
• Citigroup upgraded Weingarten Realty (WRI) to buy from hold, citing valuation and the company's improved balance sheet. The firm maintains a $24 price target for shares.
• Home Depot (HD) and Lowe's (LOW) were upgraded to market perform from underperform at BMO Capital.
• NextEra Energy (NEE) was upgraded to outperform from neutral at Baird.
• Nokia (NOK) was upgraded to neutral from reduce at WestLB.

Disney (NYSE: DIS) desperately wants to get its movie business back in some kind of order. Look no further than the recent departure of Dick Cook. According to the Los Angeles Times, the studio head was forced to resign by CEO Bob Iger because of poor performance (Iger was right to do this, but I'm not sure he's any smarter than Cook, to be honest . . .). Unfortunately, Disney's latest project, Surrogates, starring Bruce Willis, might not do much to help the cause.

According to Boxofficemojo, Surrogates came in second over the weekend at domestic theaters, behind Sony's (NYSE: SNE) Cloudy With a Chance of Meatballs. The Disney film captured an estimated $15 million versus Meatballs' $24.6 million (final numbers are due later).

Sony (NYSE: SNE) had a tasty weekend. The studio's new computer-generated cartoon, Cloudy with a Chance of Meatballs, finished the box-office race in first place. According to Boxofficemojo, Meatballs (and I am only shortening the title to Meatballs because, from what I've seen, most media outlets are using this standard; as far as I'm concerned, the movie should be shortened to Cloudy so as to avoid confusion with the classic Bill Murray comedy), made $30 million at domestic theaters as of early estimates. Don't worry, though; even if the estimates come in a little lighter than expected, Sony is going to remain top dog.

That's because the next two films on the chart are each credited with around $10 million. Time Warner's (NYSE: TWX) The Informant! and Lionsgate's (NYSE: LGF) Tyler Perry's I Can Do Bad All By Myself settled into the second and third spots, respectively. These two could conceivably change places once final stats are delivered to analysts.

It was a big weekend for Lionsgate (NYSE: LGF). The company had a Tyler Perry picture in the multiplex marketplace. As shareholders know, the talented writer/producer/director has a lot of brand equity with moviegoers. About a year ago, Lionsgate was doing relatively well with Tyler Perry's The Family That Preys. That project opened in second place.

This year, Perry has done even better. Tyler Perry's I Can Do Bad All By Myself debuted in the top spot at domestic theaters as of early estimates at Boxofficemojo. Its three-day gross was roughly $24 million. It had some stiff competition. Coming in second was the animated sci-fi piece 9 from Focus Features, which is owned by General Electric's (NYSE: GE) NBC Universal. Inglourious Basterds, distributed by The Weinsten Company, was third (the Quentin Tarantino flick has now gone beyond $100 million in total gross). News Corp.'s (NYSE: NWS) All About Steve came in at number four. Time Warner's (NYSE: TWX) The Final Destination appears to be losing steam, as it dropped to the fifth slot on the chart.

Speaking of horror, Sorority Row from Summit Entertainment came in sixth. I thought this movie was going to rank much higher, but I was wrong. The marketing campaign looked good to me, but it apparently didn't fully resonate with the intended audience (perhaps a large amount of that audience decided to opt for Destination instead).

Time Warner (NYSE: TWX) was tops at the multiplex yet again with a scary horror franchise that the teens seem to be enjoying. The Final Destination, according to Boxofficemojo, grossed $12 million at domestic theaters over the three-day weekend, as of early estimates available at the time of this writing. I'm sure Destination will retain its number-one status once Labor Day is figured into the equation.

All About Steve, from News Corp. (NASDAQ: NWS), was the second-place film. It actually came close to Destination's take, bringing in about $11 million. Inglourious Basterds, distributed by The Weinstein Company, was third, and Gamer, an interesting sci-fi flick courtesy of Lionsgate (NYSE: LGF), was fourth. Sony's (NYSE: SNE) District 9, which came in fifth, has now gone beyond $100 million in total take.

Coinstar's (NASDAQ: CSTR) Redbox, a convenient movie-rental kiosk, has really shaken things up in the media industry. BloggingStocks has covered recent events surrounding this asset: Zac Bissonnette wrote an article earlier in the month discussing the subject of litigation with certain studios, and Brent Archer covered a possible options play connected to a deal with Viacom (NYSE: VIA).

I won't rehash all of the details, but let me boil it down to the salient issue: studios such as Disney (NYSE: DIS), General Electric's (NYSE: GE) NBC Universal, and Time Warner (NYSE: TWX) are all worried about the devaluation of physical media. Redbox charges a single dollar per day for a DVD rental. This frightens content makers. Executives at these companies believe that discs must be defended since they are an important way of amortizing costs associated with making films. Even those entities that have decided to engage the Redbox model probably aren't happy about it. Lions Gate (NYSE: LGF) surely doesn't enjoy the deflation of the DVD, but it is playing ball nevertheless.

Pity poor Macrovision (NASDAQ: MVSN). First it unloads the print version of TV Guide for a measly $1 (and has to loan OpenGate Capital $9.5 million in cash to help cover the obligations assumed). Now, three weeks after agreeing to sell TVGuide.com and the TV Guide Channel to Alan Shapiro and One Equity Partners for $300 million, it turns around and dumps that deal in favor of a $255 million offer from Lions Gate (NYSE:LGF).

According to C21Media.net, the CEO of Macrovision defended the change as improving the speed and certainty of the deal closing. Apparently, the original deal contained a $45 million earn-out clause that could have reduced the final sale price. Lions Gate is also flush with cash, which never hurts.

In 2007, Macrovision acquired the properties as part of its $2.8 billion purchase of Gemstar-TV Guide. To make that deal, Microvision took on $800 million in new debt.

The move makes sense for Lions Gate, as both companies are busily expanding their stables of cable channels and internet-platform video entertainment production and distribution channels. In a gloomy market that has seen LGF stock lose over 42% of its value in the past six months, perhaps this move will serve to reinvigorate investors.

When most investors are down on a stock they own, they get depressed and sell.

Not so for Carl Icahn. Since he first bought shares of Lions Gate Entertainment Corp. (NYSE: LGF) back in mid-2006, the stock has fallen from around $10 per share to the current price of just over $7. Now Icahn has doubled his stake in the film house to 9.2%. Lions Gate is best-known for hit movies including "Crash" and "Saw", along with TV shows such as "Weeds" and "Mad Men." Icahn may see tremendous value in the company's library of films.

Vice Chairman Michael Burns told (subscription required) The Wall Street Journal that "Mr. Icahn and Lions Gate seem to share a similar vision of the growing value of content as platforms increase delivery around the world."

It'll be interesting to see if Icahn gets active in this company. He has said that he views the company as underleveraged, but current market conditions may make it tough for the company to pursue some of Icahn's favorite value-creation strategies: borrowing money to buy back stock and/or pursuing a sale or merger.

Analyst upgrades:

• Wachovia upgraded shares of The Goldman Sachs Group Inc (NYSE: GS) to Outperform from Market Perform on expectations for greater pricing power given Goldman's position as the largest remaining independent securities firm.
• Keefe Bruyette upgraded Investment Technology Group Inc (NYSE: ITG) to Outperform from Market Perform as they believe the company will take market share with the reshaping of the large wire-house brokerage community. The company's target was raised to $37 from $33.
• Broadpoint raised Hoku Scientific Inc (NASDAQ: HOKU) to Buy from Neutral as they believe the contract with Tianwei New Energy reduces financing risk.
• ACE Ltd (NYSE: ACE) and The Travelers Companies Inc (NYSE: TRV) were upgraded to Buy from Neutral at Goldman.
• Axcelis Technologies Inc (NASDAQ: ACLS) was upgraded to Buy from Hold and Evergreen Solar Inc (NASDAQ: ESLR) was lifted to Hold from Sell at Citigroup.

Analyst downgrades:

Lions Gate Entertainment (NYSE: LGF), the little studio that makes big waves in Hollywood with franchise hits such as Saw and Hostel, distributed its annual earnings numbers on Friday after market close. For fiscal 2008, revenues leaped like a lion (you knew that was coming, don't kid yourself) to $1.36 billion, which represented top-line appreciation of 39%. So far, an excellent start. But, it's the bottom line where things start to get ugly. Lions Gate reported a net loss of $0.62 per diluted share; in 2007, the studio booked net income of $0.25 per share. That can't be pleasing to shareholders. According to Marketwatch, Lions Gate did not meet expectations, as some on Wall Street believed the loss would be closer to $0.50 per share (the company did beat on the top line, though). Things were rosier for the fourth quarter, as revenues jumped over 50% and net income climbed 19% to $0.22 per share. Unfortunately, expectations were again too high, as analysts were hoping for $0.37 per share.

The cash flow is a little more pleasing. Operational cash flow increased just shy of 50% to $89.2 million. And the company adjusted this stat even further to come up with a free-cash-flow figure of nearly $137 million (the company adds back the effect of borrowings for production obligations). The huge problem here is a familiar story: rising costs for marketing and distribution. This isn't unique to Lions Gate; competitors such as Disney (NYSE: DIS), Time Warner (NYSE: TWX), Viacom (NYSE: VIA), and Sony (NYSE: SNE) all face this same issue. Management reported that costs for Lions Gate in this regard rose well over 100%.

Lions Gate is a tough one for me. Here's the thing: I love the movie business, and Lions Gate is definitely a more direct play on the business than what you get through a Disney or a Time Warner due to the scales involved. Lions Gate has some great franchises under its belt, and it tends to go for niche, edgy content. Plus, the cash flow is pretty cool.

MOST NOTEWORTHY: Time Warner Telecom, Verigy and Brinker were today's noteworthy initiations:

• Friedman Billings expects Time Warner Telecom (NASDAQ: TWTC) to post free cash flow growth above consensus expectations and believes carrier spending-concerns are overdone. The firm initiated shares with an Outperform rating and $20 target.
  
• Oppenheimer initiated Verigy (NASDAQ: VRGY) with a Perform rating and $23 target, pointing to the company's tough year over year comps as PC unit growth slows in 2008 as well as its exposure to flash memory chips.
  
• Brinker (NYSE: EAT) was assumed with a Neutral rating at Suntrust, as they expect Chili's to continue to be impacted by weak consumer spending.

OTHER INITIATIONS:

• Baird assumed Ulta Salon (NASDAQ: ULTA) with an Outperform rating and $18 target.
  
• Lions Gate (NYSE: LGF) was initiated at Jefferies with a Hold rating and $10-$11 target.
  
• Landstar System (NASDAQ: LSTR) was initiated with a Market Perform rating at Morgan Keegan.

Lions Gate (NYSE: LGF), the feisty little studio that is responsible for torture-porn franchises Saw and Hostel, has hooked up with Apple (NASDAQ: AAPL) to see if consumers care about owning digital copies of the movies they buy on DVD and Blu-ray format.

According to the following press release, Lionsgate will include an iTunes digital version of select projects on certain home-video releases. The digital copy will allow users to transfer a movie to an iTunes account, so it could then be viewable on multiple devices like PCs or Macs, iPods, Apple TV and iPhones. First up for the iTunes digital treatment will be Sylvester Stallone's Rambo -- yes, the old soldier is still around -- to be released to home video in May.

As the studio makes clear in its press release, this is all about experimentation with the promotion of new distribution models. Lionsgate wants to efficiently, and effectively, create new opportunities for its library. It's not alone -- Disney (NYSE: DIS), Viacom (NYSE: VIA), Time Warner (NYSE: TWX), Sony (NYSE: SNE) and General Electric's (NYSE: GE) NBC Universal asset are all on a never-ending study of how best to leverage the digital era to make money from content portfolios. Lionsgate wants DVD buyers to realize that they can use iTunes to buy movies from its catalog. It's a bit weird to me, though, since one would figure that a person who buys a DVD will probably just access that particular content from the DVD itself. I understand the value of transferability, of course, but if Lionsgate -- or any content provider, for that matter -- simply ensures that each digital product sold online contains unique, compelling extras that cannot be found in any other format, then a digital library will be that much easier to monetize.

At any rate, it will be interesting to see how Apple and Lionsgate do with this scheme. Apple and its iTunes brand are certainly powerful drivers of digital distribution, so maybe users will perceive a value from the digital copies.

Disclosure: Steven Mallas owns shares of Disney and General Electric; positions can change at any time.

MAJOR PAPERS:

• American Electric Power (NYSE: AEP) has agreed to pay penalties totaling $15M to end a Clean Air Act lawsuit brought by the Justice Department for the EPA, reported the Wall Street Journal (subscription required).
• In 1992 Ecuador left OPEC, but this month is expected to rejoin the organization, according to the Wall Street Journal.
• Barron's Online's (subscription required) "Inside Scoop" section reported that Warren Buffett exercised call options to purchase 7.847M shares of Burlington Northern Santa Fe (NYSE: BNI).

OTHER PAPERS:

• The UK is going to purchase 140 armored vehicles from Force Protection (NASDAQ: FRPT) for use in Iraq and Afghanistan, according to the Associated Press.
• India's Reliance Retail has won the exclusive marketing and distribution rights for Apple (NASDAQ: AAPL) stores in India. The first Apple-owned store in India is scheduled to open at the end of this month, reported the Economic Times.
• Independent movie studio Lions Gate Entertainment Corp (NYSE: LGF) has signed a partnership agreement with Mexican media conglomerate Grupo Televisa (NYSE: TV) to make movies and TV shows, and distribute Grupo's film library, reported the Los Angeles Times.