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The information in this preliminary prospectus supplement and accompanying prospectus is not complete and may be changed. A registration statement relating to these securities has been declared effective by the Securities and Exchange Commission. This preliminary prospectus supplement and accompanying prospectus are not an offer to sell these securities and we are not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.

Filed pursuant to Rule 424(b)(5)

3,950,000 Shares

Common Stock

We are offering 3,950,000 shares of common stock to be sold in this offering. We will receive all of the net proceeds from the sale of such common stock.

Our common stock is listed on the NASDAQ national market under the symbol “LNET”. The last reported sale price of our common stock on June 14, 2004 was $19.00 per share.

Investing in our common stock involves a high degree of risk. Before buying any shares, you should read the discussion of material risks of investing in our common stock in “Risk factors” beginning on page S-8 of this prospectus supplement and on page 4 of the accompanying prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters may also purchase up to an additional 592,500 shares of common stock from us at the public offering price, less underwriting discounts and commissions payable by us to cover over-allotments, if any, within 30 days from the date of this prospectus supplement. If the underwriters exercise the option in full, the total underwriting discounts and commissions will be $          , and the total proceeds, before expenses, to us will be $          .

The underwriters are offering the shares of our common stock as set forth under “Underwriting.” Delivery of the shares of common stock will be made on or about June      , 2004.

Sole Book – Running Manager

UBS Investment Bank

You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide information different from that contained or incorporated by reference in this prospectus supplement or the accompanying prospectus. Neither the delivery of this prospectus supplement nor the sale of shares of common stock means that information contained or incorporated by reference in this prospectus supplement or the accompanying prospectus is correct after the date of this prospectus supplement. These documents do not constitute an offer to sell or solicitation of any offer to buy these shares of common stock in any circumstance under which the offer or solicitation is unlawful.

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All references to “we”, “us”, “our”, “LodgeNet” and “the company” in this prospectus supplement and the accompanying prospectus mean LodgeNet Entertainment Corporation and its subsidiaries. Currently, our only active subsidiary is LodgeNet Entertainment (Canada) Corporation.

The LodgeNet logo, SigNETure TV^SM and TechConnection^SM are our trademarks. This prospectus supplement and the accompanying prospectus contain other trademarks and trade names owned by us or other entities.

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Forward-looking statements

Certain statements in this prospectus supplement, the accompanying prospectus and the documents incorporated in this prospectus supplement and accompanying prospectus by reference constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this prospectus supplement, the accompanying prospectus and the documents incorporated in this prospectus supplement and accompanying prospectus by reference, words such as “expect”, “anticipate”, “estimate”, “believe”, “no assurance”, “intend”, “should”, “could”, “may”, “plan”, “project”, “predict”, and similar expressions and statements which are made in the future tense, or which refer to future events or developments, are intended to identify such forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following factors:

-	general economic and business conditions, and trends in the lodging and entertainment industries in particular;
-	changes in hotel occupancy rates, business and leisure travel rates and the “buy rate” of our customers;
-	our ability to access popular movies, video games, music and other content on terms that are acceptable to us;
-	timely availability of content;
-	changes to the competitive environment for our products and services, including the ability of our competitors to deliver on demand entertainment or competitive services through the Internet or cable;
-	the impact of changes in regulations which may limit our ability to provide the full range of content we currently provide;
-	the occurrence of one or more future terrorist attacks, wars, public health concerns or other domestic or international crises;
-	the ability of our suppliers to provide key components and services necessary for the manufacture and assembly of our interactive systems;
-	uncertainties inherent in our business strategies, such as our efforts to expand our digital system to a broader segment of our customer base and other markets;
-	uncertainties inherent in our efforts to improve operating results by increasing revenue and decreasing costs;
-	our ability to secure additional capital on terms that are acceptable to us and sufficient to execute our business plan, including expanding the installation of our digital system in our customers’ guest rooms, and to adapt to technological changes in our industry;
-	changes in the nature of our relationships with hotel chains and their franchisees, including our ability to obtain new customers and to retain existing customers;

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-	the results of our product development efforts relating to the development of new technologies and the enhancement of existing technologies; and
-	other factors discussed in this prospectus supplement, the accompanying prospectus and the documents incorporated in this prospectus supplement and the accompanying prospectus by reference.

These forward-looking statements speak only as of the date of this prospectus supplement. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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Risk factors

You should carefully consider the following risk factors, as well as the risk factors beginning on page 4 of the accompanying prospectus, in addition to the other information contained in this prospectus supplement and the accompanying prospectus, before purchasing shares of our common stock. Investing in our common stock involves a high degree of risk. If any of the events described in the following risk factors or the risk factors described in the accompanying prospectus occur, our business, operating results and financial condition could be seriously harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of such events, and you may lose all or part of your investment. The following risk factors update and modify some of the risk factors set forth in the accompanying prospectus.

RISKS RELATED TO OUR BUSINESS

We continue to incur significant losses. If we cannot become profitable or generate sustained levels of free cash flow, it could have a harmful effect on our results of operations, business and the value of our common stock.

We experienced net losses of $29.1 million, $35.0 million and $6.2 million for the years ended December 31, 2002 and 2003 and the quarter ended March 31, 2004. As of March 31, 2004, we had an accumulated deficit of $283.0 million. We expect to continue to incur net losses. If we do not become profitable or generate sustained levels of free cash flow, which we define as having cash provided by operating activities exceeding cash used for investing activities, or if we become but do not remain profitable, it could have a harmful effect on our business and the value of our common stock.

We are dependent on others for our programming content, and increases in our costs or license fees to obtain such programming could reduce our cash flow and profitability.

Our guest room programming content is provided primarily by movie studios, major television networks and other providers, aggregators and distributors of entertainment content. We currently pay each of these parties a fee for the right to distribute their programming in our installed guest rooms. In the future, we may be exposed to volatile or increased programming costs that may adversely affect our operating results. Our entertainment content providers may demand higher royalty rates or higher minimum payments than we are currently paying or may defer making their content available to us. In some cases, we may be obligated to pay for programming on the basis of the number of guest rooms we serve, rather than a percentage of the amount of revenue we earn from resales of the programming. Lower occupancy rates could therefore negatively impact our operating income. We do not have a formal agreement with some of our content providers and, therefore, content from these providers may not be available in the future on terms that are acceptable to us, or at all. Increased licensing fees would also negatively impact our operating results.

Our revenue may be adversely affected by a reduction or elimination of the time between our receipt of movies and the movies being made available to the home rental market.

We receive our movies directly from movie studios and the timing is at the studios’ discretion. Historically, we have received movies prior to their being more broadly distributed via movie rental or retail stores. This “window of release” has yielded a competitive advantage as hotel guests have been able to view movies in the hotel rooms prior to being able to rent or purchase them for home viewing. Recently, this advance window of release has been shrinking. A further reduction or elimination of this advance window of release could adversely affect our revenue. In addition, if a studio delays release of a movie to us in a manner inconsistent with past practice, we may not be able to generate as much revenue from such movie as we could have with an earlier release date.

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The lack of quality programming or a change in available content could reduce our profitability and cash flows.

Our profitability and cash flows are dependent on our ability to provide quality and popular programming to hotel guests. We currently provide hotel guests major movies which we obtain from movie studios. The quality and popularity of major movies available at any given time and from year to year can vary widely. Generally, the more popular titles at the box office will also be more popular with hotel guests. We also provide hotel guests independent films, most of which are non-rated and intended for mature audiences, music services, and Nintendo video game services, which we obtain from others. Our ability to be profitable and generate positive cash flow depends upon our ability to provide content that hotel guests are willing to pay to view or listen to. However, we cannot predict the future popularity or quality of the movies, music, games or other content that we provide or may provide in the future. If, for any reason, such content became less popular than it is currently, or is not made available to us for distribution on a timely basis, our business could be adversely impacted. In addition, if any significant portion of the content we provide to hotel guests were to become unavailable, for reasons which could include licensing difficulties, governmental regulation or issues of public standards, our business could be adversely impacted.

Our revenue is affected by seasonality and dependent on other factors beyond our control.

Our revenue is dependent on the timely availability of content, including popular major motion pictures, the occupancy rate of each hotel property served, the percentage of occupied rooms that buy movies or other services at the property, and the price of the services. Occupancy rates vary based on the property’s location, its competitive position within the marketplace, seasonal factors, general economic conditions, changes in travel patterns due to public health concerns, the threat of terrorism, wars and other international crises, and other factors outside of our control. Occupancy rates are usually higher during the summer and lower during the winter. The percentage of occupied rooms that buy movies or other services at the property generally reflects the hotel’s guest mix profile, the popularity and seasonality of movies and other services available at the hotel and the guests’ other entertainment alternatives. The percentage of occupied rooms that buy movies or other services at the property also varies over time with general economic conditions. Our results are closely related to the performance of the lodging industry. Occupancy rates at the hotels we serve have recently declined, and may decline further due to the factors described above. Because many of the factors described above are out of our control, we may not be able to control negative trends in our revenue.

Opportunities to expand our installed customer room base may be limited, so we may be unable to grow our revenue.

Due to the capital commitment required to install our system equipment, we may choose not to offer our services to some unserved hotels, because we expect these hotels to generate an insufficient return on our investment. Further, while new hotel construction and hotel expansions offer an opportunity to expand our customer base, increases in unserved rooms due to the addition of new hotel rooms in any given year would be incremental. Accordingly, in order to grow revenue significantly, we must be successful in broadening the range of services provided to customers and securing contracts to serve both new hotel rooms and hotels that are currently served by competitors. However, if our cash management strategy calls for us to conserve available resources, we may choose not to make capital or other expenditures, which would adversely affect growth. Even if we are willing to make such expenditures, we may not be successful in our efforts to further expand our installed customer room base.

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If our hotel customers become dissatisfied with our services, they may elect not to renew or to terminate service agreements with us and, in that event, our ability to maintain or grow our revenue would be adversely affected.

In the event our customers become dissatisfied with the scope or capability of our products or services, they may elect not to renew our service agreements upon expiration or, in certain instances, terminate their existing agreements with us for our failure to perform under the terms of their contracts. The loss of a hotel chain customer, any group of customers, or the loss of significant number of hotels could have a material adverse effect on our results of operations and financial condition. In addition, any negative publicity, lawsuits, or boycotts by opponents of the mature-themed programming content could have a negative impact on the willingness of the lodging industry generally to offer such content to guests which, in turn, could have a material adverse effect on our revenues and ability to achieve stated business goals.

Our failure to develop new products and product enhancements could harm our business and prospects.

We have a continuing product development program designed to develop new products and to enhance and improve our existing products. The successful development of our products and product enhancements is subject to numerous risks, both known and unknown, including:

-	unanticipated delays;
-	access to capital;
-	budget overruns; and
-	technical problems.

These difficulties could result in the abandonment or substantial change in the design, development and commercialization of these new products or product enhancements.

Given the uncertainties inherent with product development and introduction, we cannot assure you that any of our product development efforts will be successful on a timely basis, within budget or at all. Our failure to develop new products and product enhancements on a timely basis or within budget could harm our business and prospects.

We may have to incur significant capital expenditures in order to adapt to technological change.

The television-based interactive services industry has been, and is likely to continue to be, subject to:

-	rapid and significant technological change, including continuing developments in technology that do not presently have widely accepted standards; and
-	frequent introductions of new services and alternative technologies, including new technologies for providing music and providing and displaying video services and Internet content.

We expect that new technologies will emerge that may be superior to, or may not be compatible with, some of our current technologies, which may require us to make significant capital expenditures to remain competitive. In particular, we may have to incur capital expenditures to support digital or high definition television platforms in our hotel properties. Many of our competitors, including cable and Internet service providers, may have greater financial and technical resources to adapt to and capitalize on any such technological changes more effectively than we can. Our future success will depend, in part, on our ability to anticipate and adapt to technological changes and to offer, on a timely basis, services that meet customer demands and evolving industry standards. In part, we rely on third parties for the development of, and access to, communications and network technology. As a result, we may be unable to obtain access to new technology on a timely basis or on satisfactory terms. If we fail to adapt successfully to any

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technological change or obsolescence, or fail to obtain access to important technologies, our revenues and business could be harmed.

Acquisitions of companies or technologies may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention.

While we may seek to acquire or invest in businesses, products or technologies that we believe could, among other things, complement or expand our business or otherwise offer growth opportunities, acquisitions could create risks for us, including difficulties in assimilation of acquired personnel, operations, technologies or products, which may adversely affect our ability to develop new products and services and to compete in our rapidly changing marketplace. Any acquisitions may not generate any additional revenue or provide any benefit to our business. In addition, we do not have significant experience in acquiring and integrating companies, which could impair our ability to make successful acquisitions.

Our business could be harmed if we are unable to protect our proprietary technology.

We rely primarily on a combination of trade secrets, patents, copyright and trademark laws and confidentiality procedures to protect our technology. Despite these precautions, unauthorized third parties may infringe, copy or reverse engineer portions of our technology. We do not know if current or future patent applications will be issued with the scope of the claims sought, if at all, or whether any patents issued will be challenged or invalidated. In addition, we have applied or plan to apply for corresponding patents and patent applications in several foreign countries for some of our patents and patent applications. There is a risk that these patent applications will not be granted or that the patent or patent application will not provide significant protection for our products and technology. Our competitors may independently develop similar technology that our patents do not cover. In addition, because patent applications in the United States can provide patent protection from the date of filing but are not publicly disclosed until 18 months after the patent application has been filed, other patent applications may have been filed in the last 18 months which relate to our technology and of which we are unaware. Moreover, there is a risk that foreign intellectual property laws will not protect our intellectual property rights to the same extent as United States intellectual property laws. In the absence of significant patent protection, we may be vulnerable to competitors who attempt to copy our products, processes or technology, which could harm our business.

If our products or services employ technology that infringes the proprietary rights of others, we may be subject to infringement claims, forced to pay high prices to license technology or required to stop selling our products.

Our business could be harmed if we infringe upon the intellectual property rights of others. We have been, and may be in the future, notified that we may be infringing intellectual property rights possessed by third parties. If any such claims are asserted, we may seek to enter into royalty or licensing arrangements. There is a risk in these situations that no license will be available or that a license will not be available on reasonable terms, precluding our use of the applicable technology. Alternatively, we may decide to litigate such claims or to design around the patented technology. These actions could be costly and would divert the efforts and attention of our management and technical personnel. A successful claim of infringement against us or our failure or inability to license infringed or similar technology could damage our business to the extent we are required to pay substantial monetary damages or if, as a result of a successful claim, we become unable to sell our products and services without redeveloping them or otherwise were forced to incur significant additional expense. As a result, any infringement claims by third parties or claims for indemnification by customers resulting from infringement claims, whether or not proven to be true, may harm our business and prospects.

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If our third party suppliers fail to provide us with key components and services on a timely basis, our costs could increase and our growth could be hindered.

We currently rely on third parties to supply key components and services, which are available only from a limited number of suppliers, for the manufacture and assembly of our interactive systems. We have occasionally experienced delays and other problems in receiving the components and services and may, in the future, be unable to obtain such components and services on the scale and within the time frames required by us on terms we find acceptable, or at all. If we are unable to obtain, or if we experience a delay in the delivery of, such components or services, we may be forced to incur significant unanticipated costs to secure alternative third party suppliers or adjust our operations. Additionally, certain electronic component parts used within our systems can be subject to temporary shortages because of general economic conditions. The occurrence of any of these events could increase our costs, hinder our growth and adversely affect our business and prospects.

We have substantial debt and significant interest payment requirements.

As of March 31, 2004, we had $360.6 million of debt outstanding. Even after application of the estimated net proceeds of this offering, we will have $304.7 million of debt outstanding. Subject to restrictions in our credit facility and instruments governing our debt securities, we may also incur significant amounts of additional debt for working capital, capital expenditures and other purposes. Our high level of debt could have significant consequences on our business, including the following:

-	we may have difficulty borrowing money for working capital, capital expenditures, acquisitions or other purposes;
-	we will need to use a large portion of our cash flow to pay interest on borrowings under our credit facility and other debt instruments, which will reduce the amount of money available to fund operations, capital expenditures and other activities;
-	some of our debt has a variable rate of interest, which exposes us to the risk of increased interest rates;
-	we are more vulnerable to economic downturns and adverse developments in our business;
-	we may not have the flexibility to respond to changing business and economic conditions, including increased competition and demand for new products and services; and
-	our various debt instruments contain cross-default provisions; if we default under any of these instruments, such default could constitute a default under our other debt instruments and may result in the acceleration of such indebtedness.

We may not have adequate capital resources to carry out our business plans, which could have a harmful effect on our business and prospects.

We may have insufficient capital resources to carry out our business plans if our capital expenditure or working capital requirements increase, whether as a result of product development efforts, changes in technology or otherwise, and we are unable to access financing on acceptable terms. This would have the following adverse impacts on our business and prospects, among others:

-	we may be required to delay or be unable to make the capital expenditures necessary to expand or maintain our customer base or to continue to deploy our digital system and other technological advances throughout our installed room base;
-	we may have insufficient capital to make payments on our outstanding indebtedness as they become due;

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-	we may have to delay or limit our product development activities; and
-	we may be required to seek additional capital through additional equity or debt financings, asset sales, collaborative arrangements or other sources, which may not be available to us on a timely basis, if at all, or may not be available on acceptable terms.

Our ability to generate sufficient cash to service outstanding indebtedness or fund capital requirements depends on many factors beyond our control.

Our ability to make payments on or to refinance outstanding indebtedness or to fund capital expenditures and acquisitions will depend on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not be able to generate sufficient cash flow from operations or future borrowings under existing and future credit arrangements in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity, or sell assets. If we are not able to generate sufficient cash to service or refinance any of our indebtedness, it may have a material adverse affect on our business and financial condition.

Our management may apply the estimated net proceeds of this offering to uses that do not enhance our financial results or market value.

Our management will have considerable discretion in the application of a portion of the estimated net proceeds from this offering, and you will not have the opportunity, as part of your investment decision, to assess how such proceeds will be used. Approximately $12 million of the estimated net proceeds may be used for corporate purposes that may not have the effect of enhancing our financial results or our market value. The amount of the estimated net proceeds allocated for general corporate purposes will increase if we do not secure a required amendment of our senior credit facility to permit prepayment of our 11.50% senior notes. See “Use of proceeds.”

We are dependent on our management and other key personnel, and loss of their services may adversely affect our business.

Our success and business strategy is dependent in large part on our ability to attract and retain key management and operating personnel. This can present particular challenges for us because we operate in a specialized industry and because of the geographic location of our headquarters. Such individuals are in high demand and are often subject to competing employment offers. In particular, our success is dependent on our ability to retain the services of Mr. Petersen, the Chairman of our Board and our President and Chief Executive Officer, Mr. Ritondaro, our Senior Vice President, Finance, Information and Administration and Chief Financial Officer, Mr. Bankers, our Senior Vice President, Product and Technology Development, Mr. McCarty, our Senior Vice President, Sales and Hotel Relations, Mr. Pofahl, our Senior Vice President, Technical Operations and Mr. Truckenmiller, our Senior Vice President, Programming and Content Management. The loss of the services of any of these individuals, or the failure of such individuals to perform their job functions in a satisfactory manner, could have a material adverse effect on our business.

Covenant restrictions under our senior credit facility and instruments governing our debt securities may limit our ability to operate our business.

Our senior credit facility and the instruments governing our debt securities contain covenants that may restrict our ability to finance future operations or capital needs or to engage in other business activities. Future borrowing instruments, such as credit facilities and indentures, if any, are also likely to contain restrictive covenants and may require us to pledge assets as security under those future arrangements. The

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terms of our senior credit facility and debt securities restrict, among other things, our ability and the ability of our subsidiary to:

-	borrow money;
-	pay dividends or make distributions;
-	purchase or redeem stock;
-	repay subordinated indebtedness before its stated maturity date;
-	make investments and extend credit;
-	engage in transactions with affiliates;
-	engage in sale-leaseback transactions;
-	consummate certain asset sales;
-	effect a consolidation or merger or sell, transfer, lease or otherwise dispose of all or substantially all of our assets; and
-	create liens on our assets.

In addition, the indenture for our 9.50% notes and senior credit facility and other material agreements require us to maintain specified financial ratios and satisfy certain financial condition tests that may require us to reduce our debt or to act in a manner contrary to our business objectives. Our senior credit facility also includes a covenant that would result in an event of default if we suffer a material adverse effect as defined in the senior credit facility. Events beyond our control, including changes in general economic and business conditions, may affect our ability to meet those financial ratios and financial condition tests and to otherwise remain in compliance with the requirements of our senior credit facility, other debt instruments and other material agreements. A breach of any of these covenants would result in a default under the applicable debt instrument or agreement. In that event, the amounts under the applicable agreement could be declared immediately due and payable, and such a default may cause a default under and/or an acceleration of our other outstanding indebtedness and some of our material agreements. As a result of these covenants and restrictions, we are limited in how we conduct our business and we may be unable to raise additional debt, compete effectively or take advantage of new business opportunities.

RISKS RELATED TO OUR INDUSTRY

We operate in a very competitive business environment and competition could reduce our revenue and our cash flow.

We operate in the hotel in-room entertainment business, which is highly competitive. If we are unable to compete effectively with large diversified entertainment service providers that have substantially greater resources than we have, our operating margins and market share could be reduced, and the growth of our business inhibited. In particular, we compete directly for customers with a variety of other interactive service providers, including other interactive television service providers, cable television companies, direct broadcast satellite companies, television networks and programmers, Internet service providers and portals, companies offering web sites that provide on-demand movies, rental companies that provide videocassettes and DVDs that can be viewed in properly equipped hotel rooms or on other portable viewing devices and hotels that offer in-room laptops with Internet access or other types of Internet access systems. We also compete, in varying degrees, with other leisure-time activities such as movie theaters, the Internet, radio, print media, personal computers and other alternative sources of entertainment and information. In addition, future technological developments may affect competition within this business. A continuing trend toward business combinations and alliances in both the domestic and foreign entertainment services industry may create significant new competitors for us. Many of these combined entities could have resources far greater than ours. These combined entities may provide bundled packages

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of programming, delivery and other services that compete directly with the products we offer. Our competitors may also offer services sooner and at more competitive rates than we do. We may need to reduce our prices or license additional programming to remain competitive, and we may be unable to sustain future pricing levels as competition increases. Our failure to achieve or sustain market acceptance of our offered services at desired pricing levels could impair our ability to achieve free cash flow, which would harm our business.

Due to the capital commitment required to install our system equipment, it generally has not been cost-effective for us to install our system at hotels with fewer than 75 guest rooms or low occupancy rates or low average room rates. Our competitors which have substantially greater financial and other resources than we do may develop a technology that is more cost effective than ours. As a result, our competitors may be in a better position than we are to increase their market share in the lodging industry and could adversely affect our ability to attract and retain customers.

Our business could be adversely impacted by conditions affecting the lodging industry’s performance generally and by, among other things, future terrorist attacks.

Our results are closely connected to the performance of the lodging industry, in which occupancy rates may fluctuate as a result of various factors. Reduction in hotel occupancy resulting from business, economic, or other events, such as significant international crises, acts of terrorism, war or public health issues, could adversely impact our business, financial condition and results of operations. The overall travel industry can be, and has been in the past, adversely affected by weaker general economic climates, geopolitical instability and concerns about public health.

Any future terrorist attack or threat of an attack is also likely to adversely affect the travel industry, including lodging occupancy rates. For example, industry occupancy rates fell significantly after the events of September 11, 2001. Any reduction in occupancy rates, particularly if extended over a long period of time, will reduce our revenue opportunities, which would have an adverse impact on our financial condition and results of operations.

New technologies, including the expansion of digital distribution in our markets, may fundamentally change the method and cost of distributing content, which may increase competition and result in a decrease in our revenue.

The advent of digital technology, including the introduction of digital television, is likely to accelerate the convergence of broadcast, telecommunications, Internet and other media and could result in material changes in the economics, regulations, intellectual property usage and technical platforms on which our business relies. These changes could lower cost barriers for our competitors desiring to enter into, or expand their presence in, the television-based interactive services business. Increased competition may adversely affect the scale, source and volatility of our revenue streams, cost structures and cash flow, and may require us to significantly change our operations. There is a risk that our business and prospects will be harmed by these changes or that we will not identify or adapt to them as quickly as our competitors.

Federal, state, local and foreign legislation and regulation may negatively impact our business and growth.

We may be classified as a multichannel video programming distributor, and thus may be subject to various provisions of the Communications Act of 1934, as amended by the Cable Communications Policy Act of 1984, the Cable Television Consumer Protection and Competition Act of 1992 and the Telecommunications Act of 1996, and the regulations promulgated under those acts. In addition, the Internet-based services offered by us may be affected by various laws and governmental regulations. While there are currently few laws or regulations directly applicable to access to or commerce on commercial online services, new laws and regulations are under debate by federal and local lawmakers and may be adopted. The adoption of such laws or regulations in the future may slow the growth of commercial online services and the Internet, which may cause a decline for our Internet-based services and products or have other

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adverse effects on our business. In addition, any legislative or regulatory changes restricting content that may be delivered over our systems, particularly mature content, could significantly reduce our revenue and operating income. Federal, state, local and foreign laws and regulations are, or may be, the subject of a variety of judicial, administrative and legislative hearings and proceedings that could change, in varying degrees, the regulatory classification applicable to us and the manner in which we are regulated. We cannot predict the outcome of these proceedings or their impact on our operations at this time.

RISKS RELATED TO OUR COMMON STOCK

Our stock price may fluctuate in response to market and other factors, which could depress the price of our common stock or result in substantial losses for investors purchasing such shares.

The market price for our common stock has been and may continue to be volatile and subject to price and volume fluctuations in response to market and other factors, including the following, some of which are beyond our control:

-	variations in our quarterly operating results from our expectations or the expectations of securities analysts or investors;
-	downward revisions in our estimates or securities analysts’ estimates or changes in general market conditions;
-	announcements of technological innovations or new products or services by us or our competitors;
-	announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
-	additions or departures of key personnel;
-	investor perception of our industry or our prospects;
-	insider selling or buying;
-	reduction in the trading volume of our common stock;
-	regulatory developments affecting our industry; and
-	general technological or economic trends.

You may not be able to resell your shares of our common stock at or above the public offering price, or at all, which could cause you to lose some or all of your investment. In the past, following periods of volatility in the market price of their stock, many companies have been the subject of securities class action litigation. If we became involved in securities class action litigation in the future, it could result in substantial costs and diversion of our management’s time, attention and resources and could harm our stock price, business, prospects, results of operations and financial condition.

Provisions of Delaware law and of our charter and by-laws and our stockholder rights plan may make a takeover more difficult.

Provisions in our certificate of incorporation and by-laws and in Delaware corporate law may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and board of directors. Public stockholders who might desire to participate in such a transaction may not have an opportunity to do so. We have also adopted a stockholder rights plan to impede a takeover event in the event an unsolicited offer to acquire us is received that is either inadequate or determined by our board of directors not to be in the best interest of our stockholders. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or to change our management and board of directors.

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Future sales of our common stock could adversely affect our stock price.

Substantial sales of our common stock in the public market, or the perception by the market that such sales could occur, could lower our stock price or make it difficult for us to raise additional equity capital in the future.

In addition, as of March 31, 2004, 3,281,454 shares of our common stock were required to be reserved for issuance under our equity incentive and other benefit plans and 2,340,000 shares of our common stock were required to be reserved for issuance pursuant to outstanding warrants. As of March 31, 2004, options to purchase 2,634,454 shares of our common stock were issued and outstanding under our equity incentive plans at a weighted average exercise price of $15.41 per share, of which options to purchase 1,860,037 shares had vested. Of the outstanding warrants to purchase shares of our common stock, as of March 31, 2004, warrants to purchase 1,913,493 shares of our common stock have vested, 240,000 with an exercise price of $7.00 per share and 1,673,493 at $20.44 per share. If we issue shares of our common stock below the market price, as determined under the agreement governing the issuance of these warrants, these warrant holders are entitled to dilution protection which will permit these warrant holders to purchase additional shares of common stock upon exercise of their warrants without payment of additional funds.

We cannot predict if future sales of our common stock, or the availability of our common stock for sale, will harm the market price for our common stock or our ability to raise capital by offering equity securities.

We do not pay dividends and do not anticipate paying any dividends in the future, so any short-term return on your investment will depend on the market price of our capital stock.

We have never declared or paid cash dividends on our common stock. We currently intend to retain any earnings to finance our operations and growth. The terms of our outstanding debt and bank credit facility each restrict and limit payments or distributions in respect of our capital stock. Therefore, we do not expect to pay any dividends. Any short-term return on your investment will depend on the market price for our shares.

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Use of proceeds

Our net proceeds from the sale of the shares of common stock, after deducting underwriting discounts and commissions and other expenses of this offering payable by us, are estimated to be approximately $69.8 million ($80.5 million if the underwriters’ over-allotment option is exercised in full), assuming a public offering price of $19.00 per share. We intend to use the net proceeds of this offering to repay the entire $12 million outstanding principal amount of our 11.50% senior notes, together with accrued interest and estimated prepayment premiums aggregating $1.2 million, and to repay part of the term loan portion of our senior credit facility in the amount of $44.0 million, together with estimated accrued interest in the amount of $527,000. See footnote 9 to our financial statements included herewith regarding our senior credit facility. Our senior credit facility agreement prohibits the prepayment by us of our outstanding 11.50% senior notes. We are seeking an amendment of the agreement to allow the prepayment, and, for purposes of this prospectus supplement, have assumed that we will obtain the required amendment. In the event that we are not able to obtain this amendment, we intend to use the estimated net proceeds otherwise intended for repayment of the 11.50% senior notes for general corporate purposes. We intend to use the remainder of the net proceeds for general corporate purposes. Pending this utilization, we intend to invest the net proceeds from the sale of the notes in short-term, dividend-paying or interest-bearing investment grade securities.

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Price range of common stock

Our common stock is traded on the Nasdaq National Market under the symbol “LNET”. The following table sets forth for the indicated periods the range of high and low per share closing sales prices for our common stock as reported on the Nasdaq National Market:

On June 14, 2004, the last reported sale price for our common stock was $19.00 per share and as of June 10, 2004, there were approximately 120 holders of record of our common stock.

Dividend policy

Historically we have paid no dividends on our common stock. We do not intend to pay any cash dividends on our common stock in the foreseeable future. We expect that we will retain any earnings to finance our operations and growth. In addition, the terms and conditions of our debt instruments restrict and limit payments or distributions with respect of our common stock.

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Capitalization

The following table sets forth our capitalization as of March 31, 2004:

-	On an actual basis.
-	On an adjusted basis giving effect to our sale of the common stock in this offering under this prospectus supplement at an assumed offering price of $19.00 per share and the receipt of the net proceeds of this sale, assuming repayment of the entire $12 million outstanding principal amount of our 11.50% senior notes, together with accrued interest and payment of estimated prepayment premiums aggregating $1.2 million, and repayment of part of the term loan portion of our senior credit facility in the amount of $44.0 million, together with estimated accrued interest thereon in the amount of $527,000. Our ability to prepay our 11.50% senior notes is subject to the consent of our lenders under our senior credit facility agreement. See “Use of proceeds.”
-	The as adjusted column also reflects an estimated charge of $891,500 for the write off of a portion of the deferred financing costs as a result of the prepayment of part of the the term loan portion of our senior credit facility, an estimated charge of $1.2 million for estimated prepayment premiums and interest on our 11.50% senior notes, and an estimated charge of $61,000 for the remaining unamortized discount on our 11.50% senior notes as a result of the prepayment.

This table should be read in conjunction with “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and the related notes included in this prospectus supplement.

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The table above excludes:

-	2,634,454 shares of common stock issuable upon exercise of outstanding options as of March 31, 2004, granted under our equity incentive plans, with a weighted average exercise price of $15.41 per shares;
-	647,000 additional shares of common stock available for future issuance under our equity incentive plans as of March 31, 2004;
-	1,913,493 shares issuable upon exercise of vested warrants, with 1,673,493 warrants exercisable at $20.44 per share and 240,000 warrants exercisable at $7.00 per share. The warrants for a total of 240,000 shares include anti-dilution rights for issuance of stock, options and other securities at less than market price, which is defined to be the average of the closing price for the prior twenty trading days; and
-	592,500 shares of common stock issuable upon exercise of the underwriters’ over allotment option.

Liabilities other than long-term debt include a $10.5 million liability for the fair value of derivative instruments, comprised of interest rate swaps related to our senior credit facility.

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Selected consolidated financial data

The following table sets forth consolidated financial data as of the dates and for the periods presented. The statement of operations data, balance sheet data and other data as of, and for each of the years during the three-year period ended, December 31, 2003 have been derived from, and should be read in conjunction with, our audited consolidated financial statements and the related notes included in or incorporated by reference in this prospectus supplement. The statement of operations data, balance sheet data and other data as of and for each of the years ended December 31, 2000 and 1999 are derived from our audited consolidated financial statements. The selected historical statement of operations data, balance sheet data and other data as of, and for the three months ended, March 31, 2004 and March 31, 2003 have been derived from, and should be read in conjunction with, our unaudited consolidated financial statements for the fiscal quarter ended March 31, 2004 included in this prospectus supplement and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim periods.

(footnotes on the following page)

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(1)	During 2002, we entered into settlement agreements with Broadcast Music Inc. and the American Society of Composers, Authors and Publishers, which resolved claims for alleged nonpayment of royalties on copyrighted musical works performed in major motion pictures. See “Management’s discussion and analysis of financial condition and results of operations — Results of Operations — Years Ended December 31, 2002 and 2001 — Investment Losses — Litigation Settlements” on page S-41.
(2)	In June 2003, we retired our 10.25% notes. As a result of the early retirement, we incurred a $7.1 million loss on the write-off of related debt issuance costs and payment of call and tender premiums, and transaction expenses. In 2001, we recorded a $2.1 million loss on early retirement of our 1999 bank credit facility.
(3)	Represents cash used for property and equipment additions as reported in the Statement of Cash Flows.
(4)	During 2001, we transitioned from installing tape-based systems to installing digital systems.
(5)	Operating income before depreciation and amortization is calculated by adding depreciation and amortization to operating income. Operating income before depreciation and amortization is not intended to represent an alternative to operating income and is not representative of funds available for discretionary use due to our financing obligations. Management utilizes operating income before depreciation and amortization to provide a stable and consistent comparison of operating performance exclusive of historical costs of capital related to depreciation and amortization. We believe that depreciation and amortization are fixed or “sunk” costs, which do not provide a stable measure for variable or controllable operating performance.
(6)	End of period statistics. Guest pay interactive rooms are equipped with our interactive television system, which include both digital and tape-based systems.
(7)	Total rooms served includes guest pay interactive rooms, rooms served by international licensees, and properties receiving only basic and premium television services.

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Management’s discussion and analysis of financial condition and results of operations

This discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus supplement and in conjunction with the section entitled “Risk factors” in each of this prospectus supplement and the accompanying prospectus.

OVERVIEW

We are one of the world’s largest providers of interactive television systems and broadband services to hotels, including resort and casino hotels, throughout the United States and Canada, as well as select international markets. We estimate that more than 260 million guests during 2003 had access to our interactive television services, which are designed to make their stay more enjoyable, productive and convenient, and to allow our customers to provide greater customer service and promote brand loyalty. As of March 31, 2004, we provided television services to approximately 5,800 hotel properties serving more than one million rooms.

Throughout 2003, we delivered solid financial results in the face of the Iraq war, public health outbreaks, and a slowly recovering economy, all of which affected the travel and lodging industry. We selectively reduced the number of new rooms installed, controlled discretionary spending, continued to reduce our capital investment per new digital room, actively managed our cash position, and remained debt-neutral during the second half of 2003, while at the same time we continued to grow our business. We expanded our digital room base by approximately 45%, or by 120,329 rooms, during 2003.

For the first quarter of 2004, we continued to execute on our operating plans by delivering increased revenue and generating greater margin and positive cash flow as compared to the first quarter of 2003. In addition, we reduced debt by $7.6 million from the end of 2003. During the first quarter of 2004, we expanded our digital room base by 29,989 rooms and, as of March 31, 2004, our digital system was installed in 415,415 rooms, or approximately 45% of our interactive room base. In addition, we reduced our cost of installation for both new and converted rooms.

Guest Pay Interactive Services. Our primary source of revenue is providing in-room, interactive television services to the lodging industry, for which the hotel guest pays on a per-view, hourly or daily basis. Our services include on-demand movies, video games, music and music videos, Internet on television (which does not require a laptop), and television on-demand programming.

Our total guest generated revenue depends on a number of factors, including:

-	The number of rooms equipped with our system. We can increase revenue over time by increasing the number of rooms served by our interactive systems. Our ability to expand our room base is dependent on a number of factors, including the attractiveness of our technology and service and support to hotels currently operating without an interactive television system, newly constructed hotel properties and hotels with expiring contracts currently served by our competitors.
-	The variety of services offered at the hotel. Rooms equipped with our digital system generate higher revenue than rooms equipped with our tape-based system, primarily because they offer a greater variety of services and content choices. We plan to continue to grow our average per room revenue by installing our digital system in all newly-contracted rooms and by converting selected tape-based rooms to our digital system in exchange for long-term contract extensions.

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-	The popularity of content offered at the hotel. Our revenues vary to a certain degree with the number and popularity of major motion pictures available for viewing. Historically, a decrease in the availability of popular major motion pictures has from time-to-time adversely impacted revenue. Although not completely within our control, we seek to program and promote the most popularly available major motion pictures and other content to maximize revenue and gross profit.
-	The price of the services purchased by the hotel guest. Generally, we control the prices charged for our products and services and manage pricing in an effort to maximize revenue and overall gross profit. We establish pricing based on such factors as the demographics of the property served and the popularity of our content. Our technology enables us to measure the popularity of our content and make decisions to best position such content and optimize revenue from such content.
-	The occupancy rate at the property. Our revenue also varies depending on hotel occupancy rates, which are subject to a number of factors, including seasonality, general economic conditions and world events, such as terrorist threats or public health issues. We target higher occupancy properties in diverse demographic and geographic locations in an effort to mitigate occupancy-related risks.

The primary direct costs of providing guest pay interactive services are:

-	license fees paid to major motion picture studios, which are based on a percent of guest-generated revenue, for non-exclusive distribution rights for recently released major motion pictures;
-	commissions paid to our hotel customers, which are also based on a percent of guest-generated revenue;
-	fixed monthly programming charges paid primarily to DIRECTV for satellite-delivered basic and premium television programming;
-	Internet connectivity costs;
-	license fees, which are based on a percent of guest-generated revenue, for television on demand, music, music video and video games; and
-	one-time license fees paid for independent films, most of which are non-rated and intended for mature audiences.

Other services. We also generate revenue from the sale of content and services directly to our hotel customers, which are generally provided free to hotel guests. Included in these services are satellite-delivered basic and premium television programming for which the hotel pays us a fixed monthly charge per room. In addition, we also sell high-speed Internet maintenance and customer support services. While this is a highly competitive area, we believe we have important advantages as a result of our existing hotel customer relationships, nationwide field service network and 24-hour call center, providing service seven days a week.

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KEY METRICS

Rooms served. One of the metrics we monitor is the growth, net of de-installations, of our guest pay interactive room base. De-installation activity has not had a material effect on our growth and has historically averaged approximately 2% of total installed rooms per year. We installed our systems in the following number of net new rooms during the periods indicated and had the following total rooms installed at the end of periods indicated:

Digital room growth. We continue to expand our digital base as we install the system in all newly contracted rooms as well as converting select tape-based rooms to the digital system in exchange for contract extensions. Rooms equipped with our digital system generally generate greater revenue since the range of services is greater than rooms equipped with our tape-based systems. We expect that our digital infrastructure will allow us to continue to cost effectively introduce innovative entertainment, information and guest service options as they become available. Total installations declined in 2003, as compared to 2002, and in the first quarter of 2004, compared to the first quarter of 2003, as a result of the management of our debt levels. Our goal is to have approximately 75% of our room base installed with a digital system by the end of 2006.