Relativity Chief Ryan Kavanaugh took the stage Tuesday afternoon to share his optimism --and frustrations-- about the film industry.
"This business doesn’t get judged by profitability," he told the industry crowd at The Wrap's The Grill conference, a flawed model he doesn't see changing anytime soon. In fact, it's that lack of transparency that he argues leads not only to wide-spread mistrust of the studios but also inaccurate reporting of the financial success --or failure-- of the films they produce.
Consider last year's Brothers, a Relativity-financed film distributed by Lionsgate. The media called it's financial prospects "dim" after it opened at no. 3, behind The Blind Side and Twilight's New Moon, with $9.5 million at the domestic box-office. The war drama starring Jake Gyllenhall, Tobey Maguire and Natalie Portman went on to gross what on the surface appears to be an unimpressive $28.5 million domestically.
But what those quick to label it a dud didn't know, said Kavanaugh, was that the money that was poring in at theaters around the country was pure gravy. In keeping with his company's model, he had mitigated the film's risk largely with overseas capital on the $27 million movie. That the film fared worse than The Blind Side was almost irrelevant to him. "We don’t judge ourselves by box office," he said." We have a very different process.''
That process: unlike his larger studio rivals, his company has output deals in 110 countries, and each has to take every movie Relativity makes. When you combine that foreign money with tax credits, his company generally covers 75% or more of their budget. In the case of Brothers, along with one other film he declined to name, he said they were profitable before they ever spent a day filming.
Making sense of his film strategy, he said he doesn't care about a film's budget so long as it has the potential to make money. This is the man who famously said he'd rather have Paul Blart: Mall Cop among his credits than some other critically-acclaimed artsy flop, after all. What he assess before signing on for a film is the worst case scenario. Simply, if the film's worst case scenarios is to break even or lose only a bit of money (again, care of his foreign deals) and the potential upside is that much greater, then it is worth doing.
If you take Kavanaugh at his word, his studio is having a "record-breaking" year in terms of profits and is poised to break the impressive $2 billion revenue mark. Going forward, he expects to remain profitable care of digitally-minded moves like his recent deal with Netflix. “The economics were great," he said of the "pay-TV" deal without giving too many details. "I don’t think people even grasp the size of it; basically I would say it’s the most competitive pay TV deal in the history of the business.”
Whether the company's future will feature a flurry of deal activity the way its last year has isn't as clear. "We’re always looking," he said of what he calls a very good buyers' market. "There are a lot of assets out there and not a lot of capital... but right now, we’re focused … on delivering a good profitable supply of movies."