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

by Tambay A. Obenson
October 2, 2011 9:15 AM
7 Comments
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As I've already said in recent posts, there's quite a bit of *old* S&A content sitting on our former site (going back to our beginnings in April 2009) that I'll be reposting here at our new location - content that I think remains relevant and topical, speaking to or addressing discussions we've had, and continue to have here on S&A.

Here's one I remembered this morning, while catching up on all your comments in response to recent posts, 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 anyway) in the 21st century.

I first posted this in November 2009; I read it again this morning and thought it was worthy of a repost, almost exactly 2 years later.

So, read it and weep... or maybe you won't weep. But read it anyway:

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 Sony, Universal 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...


Sigh... This is how it goes folks... especially if your goal is to work within the world of Hollywood studio filmmaking. Not for me, thanks. But maybe you have a stronger stomach than I do!

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 just 36 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 2 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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7 Comments

  • Tamara | October 4, 2011 4:06 AMReply

    Now, if Kavanaugh or Tooley are kept awake at night by a script, they might put more effort into massaging the variables — plugging in different actors and budgets, finding the right combination of elements — until the percentages make sense.

    So they 'massage' the algorithm so that the output is to their liking...IF it's a film that won't let them sleep at night. Hmm. So it's not wholly clockworks, but not all that intuitive either is it, this deux ex machina's results...

    But again, their money so they can play yahtzee and tap on the dot matrix as much as they want until they get what they want. They can change the math to fit what they want and either make bank or make break the lives of those eager directors/actors involved.

    I'm super green. I knew/know Hollywood is a business...but a business on 'this' side of computation? Boggles the mind. Assigning statistics,probability and theory to a work of art... Explains all the junk out there; all the remakes and the 3D and the Reese Witherspoons STILL getting paid jillions for films (though Water for Elephants made barely a blip on the radar of my filmic scenic landscaped (and probably yours, too.) And it was a feature come from a popular book, much like The Help read the world over in wives, sisters, bookclubs, bridgeclub groups, etc.

    He is unapologetic about what he purports. Making money because essentially he's in a business and "every film is a company". Again, his perorgative.

    My question, has it always been this way? Has there been the practical business of movie-making, computation aside, with "outliers" like the rabbi and warlocks for santeria come along on go-sees or auditions. Has Hollywood always tried to find a way to 'mathmatically define' the outcome of box office based on the star, the director, the story, etc. So many variables when dealing with something that is at most subjective, the outcome truly based on the public, the viewers reception?

    Great read. Fascinating really. I'm green. This begs repeating. I don't know the biz. Frankly knowing this "in" as "the" in to get something up and running in mainstream Hollyweird, gives me great pause and pause some more. I think I'd rather come in through the side window and not the front door if this is how things are. But then again, I'm no Ron Howard, no Baz Luhrrmann, no James Cameron...

    Fascinating.

    Thanks for this. I'm going to re-post it. Truly boggled. And 2 billion? 12 billion in liquid? WHAT!?!?! And he's 36...

  • kele | October 3, 2011 10:41 AMReply

    I am not completely surprise Hollywood business is now ran like forex calculation, it was going to happen anyway. Its show 'business' right? Am sure if I research movies Relativity have invested in, I'd find few very fascinating or outstanding. The Lion King which was made almost two decades ago is still knocking out the supposed algorithm movies out in sales and these people can't still don't see its not a coincidence. Well, Hollywood to me is not the passage to excellence in filmmaking, creativity has always been.

    They can knock themselves out with their permutations.

  • Tamara: RAGE against the machine...or do your own | October 3, 2011 7:47 AMReply

    This truly hurts.

    it’s fed into an elaborate Monte Carlo simulation, a risk-assessment algorithm normally used to evaluate financial instruments...

    *stomach clutch to the side*

    Owwy. Seriously? An algorithm? FOR FILMS?!?!?! (subjective content) !?!?!?!?!?!?!

    Gonna read that Esquire article later. Thanks for this...stomach ache.

  • other song | October 2, 2011 11:36 AMReply

    Innovate or die.

  • theyounglion | October 2, 2011 10:57 AMReply

    If I'm not mistaken, that system seems to be failing Relativity, as they have had a lot of high profile under-performers and outright flops lately.

    Moreover, according to several articles in Deadline Hollywood over the last few months, Ryan Kavanaugh has been locked in a major fight with Relativity's main benefactor, Elliott Associates, for control of the company. It seems that Elliott has not been happy with the way Relativity has been run, nor have they been happy with financial losses from several movies.

    So this financing system might implode just like so many other supposed foolproof systems of picking hit movies have over the years. Anyway, I'm onboard with what Vanessa said. Although Hollywood might still be considered the holy grail for making movies, there are so many other ways to do it and get work seen outside of the studios.

  • Monique | October 2, 2011 10:16 AMReply

    Things that make you go "ouch." Which again is why, inside the Hollywood system is not the way to go. Ownership. Owning ones art and putting ones art out by themselves...period. Even if two people see it, at least you can sleep at night, though your stomach might be growling.

  • Vanessa Martinez | October 2, 2011 10:15 AMReply

    I really don't care about Hollywood; neither do a lot of people. That number is growing everyday. Do great creative work and find a way to fund and distribute it. Times are changing as we know. There's a lot more opportunities now networking with the right people. All indie everything. You have to remain positive.

    Just like Isaiah Washington says, he's out of the system and the last 5 projects he got, were through contacts in Facebook..not through agents and all that.

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