MONTREAL — It has been a tumultuous couple of years for Alliance Films, Canada’s leading film distributor. But Alliance president Charles Layton believes things are finally looking up for the Montreal-based company, which he joined last fall.

In a discussion at Alliance’s HQ in Old Montreal, Layton, a former Miramax exec, suggests the Canuck company’s troubles had been exaggerated in the press, noting that the private company continues to be quite profitable.

“The reports of our death were premature,” Layton quips.

Layton is feeling upbeat because Alliance has just inked output deals for Canada with three key suppliers, Relativity Media, Grosvenor Park and Freestyle Releasing, and, more importantly, Alliance has extended its pact with New Line to cover pics right through to fall 2009.

In March, Alliance CEO Victor Loewy was none-too-happy to announce that his company was about to end its long-term relationship with New Line as a result of Warner Bros.’ decision to fold New Line into Warner. The timing of the announcement was particularly unfortunate given that Quebec government investment arm the Societe Generale de Financement had just spent C$100 million ($94 million) to take a 51% stake in the company. Things looked even worse when Miramax also announced that it was no longer selling its films to Alliance in Canada.

At the time, Loewy insisted losing New Line was no big deal because its pics hadn’t performed over the past two years. But just three years ago, New Line accounted for as much as 40% of all of Alliance’s revenue thanks to “The Lord of the Rings” trilogy.

Layton stands by Loewy’s earlier comments, saying, “2006 and 2007 were not good years for New Line, but the returns for 2008 have been excellent, with ‘Sex and the City’ and ‘Journey to the Center of the Earth.'”

When Alliance Atlantis Communications was bought by CanWest Global and Goldman Sachs last year, Alliance Films was left out of the deal because CanWest only wanted the parent company’s broadcast assets. In August 2007 Alliance Films was taken private by Goldman Sachs and Toronto investment firm EdgeStone. But it was a rough year at the box office for Alliance and its troubles were only heightened by the loss of the deals with New Line and Miramax.

“Last year was definitely not that pleasant,” Layton says.

Worse still, Alliance faces a tough rival for the first time in Canada with the arrival of Entertainment One, a strong well-capitalized company that’s been on a spending spree over the past year, buying Montreal-based film distrib Seville Pictures, Robert Lantos’ Maximum Films and Euro distrib RCV Entertainment. Entertainment One has been inking output deals, including one with Summit Entertainment, a deal Alliance had aggressively chased.

Layton insists the presence of Entertainment One is only a plus for the Canadian industry.

“I come from the U.S. where competition is part of the air,” he says. “I think the relative lack of competition in the Canadian marketplace was a delightful anomaly for the people who worked at Alliance.”

But the real battleground for Alliance in the coming years will likely be Europe. It already has a dominant position in Canada with 13.8% of the overall market in 2007 and 14.2% of the market in the first half of 2008. The potential for growth is more on the other side of the Atlantic, where Alliance already owns Momentum Pictures in the U.K. and Aurum in Spain. It is an open secret that Alliance is in discussions with Gallic company TF1 to acquire TF1’s domestic French distributor TFM, the country’s leading distrib.

Layton disagrees with the assessment that Alliance is maxed out in Canada but he does admit the focus in the near-future will be Europe for the simple reason that the combined population of Italy, Spain, France and the U.K. remind you of just what a small market Canada is.