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The Mathematics Of Movie-Making, Hollywood Studio-Style! (Things That Make You Go Hmm...)

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by Tambay A. Obenson
May 1, 2013 11:06 AM
6 Comments
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As an addendum to Steven Soderbergh's SFIFF *rant* which has had the film blogosphere in a tizzy over the last 48 hours, as we're all talking about it, I thought I'd repost this entry which profiles one major Hollywood player (Ryan Kavanaugh of Relativity Media), giving the *outsider* an inside look at how studio films get greenlit and financed (some of them anyway) in the 21st century.

I first posted this in November 2009; and was reminded of it after watching Soderbergh's keynote speech last night, and thought it was worthy of a repost.

I also think it addresses questions that come up often on this site, like, why is a certain film being made? Why is this actor/actress being cast over some other actor/actress that you think is a better fit or more deserving? Why all the sequels? How are these decisions made? Etc...

Consider Soderbergh's speech as the artist's (filmmaker's) POV; and consider Kavanaugh's profile the other side of that *debate* - the POV of the financier/backer who funds many of the Hollywood movies that you see.

Yes, the piece if 4 years old, and a bit has changed since then; but it's still very relevant today. In fact, I'd say things are even worse now than they were then. So reading this again today, wasn't as sensational as it was reading it in 2009.

BEGIN

This should prove to be very enlightening and instructive for those of you not fully aware of the how and why movies get made as they currently are! Reading this piece from Esquire Magazine titled, Ryan Kavanaugh Uses Math to Make Movies, was rather discouraging, even though it doesn't reveal much that I'm not already somewhat cognizant of. However, it was all still saddening, and even maddening that this is what movie making/financing has come to be: content be damned; it's all about plugging in information into an Excel spreadsheet, and using whatever results are returned, to determine what films get made and which are trashed!

At the center of the article is Ryan Kavanaugh, a 34-year old, onetime venture capitalist, who now runs Relativity Media LLC, which sits on an estimated $2 billion in liquid assets, much of which comes courtesy of Elliott Associates, a New York-based hedge fund, with another $13 billion more where that came from. If you're not familiar with Kavanaugh and Relativity, you should be, especially if you're in the business, or plan on enterting the business, at some point, in some capacity.

Why? Well, as the article states, the majority of the movies made by studio giants like SonyUniversal and Warner Bros - about three quarters of them, in fact - rely on financing from Relativity Media. All told, Relativity, and thus Ryan Kavanaugh, will produce or co-produce maybe half of the movies that will be released in 2010. Which means that if you see a movie sometime in the next twelve months, there's a good chance that it's been financed, at least partly, by the red-haired, 34-year old Kavanaugh through his company, Relativity Media, LLC. Talk about power, right?

Even as studios continue to be affected by the economic downturn, Kavanaugh and Relativity seem immune! Why? Well, as stated in Esquire's piece, it's all thanks Kavanaugh's system - one based on mathematics, algorithms, etc.

To wit, this section of the piece:

"What I first see is a bunch of numbers," says Ramon Wilson, Relativity's thirty-year-old executive vice-president of business development. A former investment banker, Wilson leads a team of young-turk statisticians — Hollywood's equivalent of Moneyballers — who occupy a cramped, windowless back room littered with empty cans of Diet Coke. On a tall bookshelf, there are rows of thick black binders, each of which has the name of a movie stickered onto its spine: Zombieland, Charlie Wilson's War, Paul Blart: Mall Cop.

Before Relativity commits to financing a particular movie — either through its slate deals with Sony and Universal or on its own — it's fed into an elaborate Monte Carlo simulation, a risk-assessment algorithm normally used to evaluate financial instruments based on the past performance of similar products. Enough variables are included in the Monte Carlo for Wilson and his team to have reached the limits of their Excel's sixty-five thousand rows of data: principal actor, director, genre, budget, release date, rating, and so on.

After running the movie through ten thousand combinations of variables (in marathon overnight sessions), the computers will churn out a few hundred pages that culminate in two critical numbers: the percentage of time the movie will be profitable, and the average profit for each profitable run. The computers will also calculate the best weekend for the movie to be released, whether Russell Crowe will earn his salary or Sam Worthington will be good enough, and the box-office effect of an R rating versus PG-13. But for Kavanaugh, those are secondary considerations: Unless the movie shows the distinct probability of a return — no one at Relativity will reveal the precise green-light figure, but it's something like 70 percent — the script gets shredded. "Everything has to run on the principle of profit," Kavanaugh says. "We'll never let creative decisions rule our business decisions. If it doesn't fit the model, it doesn't get done."


And there you go! If that doesn't worry you, even just a little bit (especially if you're a creative type, interested in practicing your craft within the studio system), then you must have ice in your veins! Are these "kids" (although, really, they're both in my age group), their computer algorithms, and their 10-thousand permutations, really the future of movie-making in Hollywood? Given that about 3/4 of some of the biggest movies currently in production are partly or fully funded by Kavanaugh and company, that's looking to be the case!

As Kavanuagh further states:

"Volatility is a bad thing in any business," he says. "We're just not going to take big risks. That means we'll probably never hit a home run, because the model makes it hard for us to swing for the fences. We wouldn't have made The Matrix. But we wouldn't have made Waterworld, either."

It's antiromantic, Kavanaugh's singles-and-doubles model. Maybe it's bad for the future of art. Relativity will never make a movie that bends genres, or is set in Victorian England, or stars midgets. It will never make those movies, because the computers know that we won't go see them, even when they win awards and four-star reviews. "Do you know how many people saw The Assassination of Jesse James?" Kavanaugh asks, referring to one of his most beautiful early efforts. "You and seven other people. Paul Blart grossed nearly $200 million worldwide. I'll take Paul Blart all day, every day." And because he'll take Paul Blart all day, every day — and because he knows New Mexico can double as both the Middle East and Minnesota, and because he knows Natalie Portman is a bigger draw in France than you might reasonably expect — Ryan Kavanaugh still has money, and he's still making movies. He might even save movies...


This is how it goes folks... especially if your goal is to work within the world of Hollywood studio filmmaking.

Read the full 3-page Esquire article HERE. I strongly recommend it, if you're at all interested in movies!

END

By the way, Relativity Media is still run by Ryan Kananugh (who's still just 37 or 38 years old now); it has also since expanded, acquiring Rogue Pictures (a genre label), and is now more of a full-fledged film and TV production and distribution company, though it still co-finances other major studio film slates. It's also gotten into the music business, sports and digital media.

Reading this 4 years later, I laugh at my 2009 self; none of this gets a rise out of me anymore, as it once used to. Like I've said many times... a brotha is tired. Don't let me stop you though :)

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6 Comments

  • NO BRAINER | May 2, 2013 12:30 PMReply

    This is old news, man. Ryan Kavanaugh been sharing his strategy for years. It only speaks to the point Soderbergh is trying to make.

  • Rodney | May 1, 2013 1:45 PMReply

    Keep in mind that in 2009, Relativity was one of many funds doing slate deals with the studios. Their theory of diversifying away risk and using statistical sampling to predict “singles and doubles” has been largely disproved. I recall commenting in the original post that the profit margin is in distribution and that these deals are generally sources of cheap money for the studios who continue to add to their large libraries and leverage those library values through their worldwide distribution systems.

    The only real math that counts is the studio math, not that of the hedge funds.

  • Daryl | May 1, 2013 1:25 PMReply

    Good Article Tambay, this is what I been saying, Hollywood is Wall ST and these guys don't care about the art of movies, they just care about making a fast buck, so why are we catering to people who don't love movies when we don't have to anymore? Let them be who they are and we will be who we are, the people that love the art of filmmaking.

  • Agent K | May 1, 2013 12:33 PMReply

    I really don't see why anyone would get upset. If that is his MO, that's fine. If there are people that disagree, don't work with Relativity Media.

  • Agent K | May 2, 2013 8:34 AM

    @Tom
    With Universal and Sony Pictures they've gotten bigger with the help of some of their own films but that's about it.

  • Tom Haverford | May 1, 2013 12:52 PM

    Did you miss the part where Relativity Media was financing half the films in 2010, and has only gotten bigger since then? They're probably within spitting distance of 75% of the market share now, if they haven't crossed it already. Your statement is the equivalent of saying "Don't walk near trees" when moving through a forest.

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