At TheWrap's conference on media and the entertainment industry, TheGrill: “The economics (of the Netflix deal) was great … people don't grasp the size of it”
Ryan Kavanaugh’s Relativity Media is a newborn when compared with the big studios that preceded it, and maybe that’s to their advantage.
Boasting a “record-breaking year” on a jaw-dropping $2 billion in revenue, Kavanaugh told the crowd assembled at TheWrap’s conference on media and the entertainment industry on Tuesday that Relativity was built up one piece at a time to understand each part of the business – and how to do it better.
Chief among them: the deal it just signed with Netflix, allowing the DVD mailer to stream first-run theatrical releases within the traditional pay-TV window.
Giving today’s instant-gratification consumers the ability to watch Relativity content at any time was an attractive option, Kavanaugh said.
So was the money, of course.
“The economics was great – a certain guarantee on each film. I don’t think people even grasp the size of it. Basically it’d say it’s the most competitive pay TV deal in the history of the business.”
With that kind of revenue ($2 billion!) this early in Relativity’s life cycle, it must be.
That partnership was forged despite the perceived hostility toward Netflix in Hollywood, which has seen it as a threat to DVD sales, pay-TV windows and other post-theatrical revenue streams.
But that hostility is falling away fast.
“Back-to-back announcements with Epix and Relativity … showed that there is a future there; there really is a viable alternative to piracy,” said Netflix Chief Content Officer Ted Sarandos at a later session at TheGrill.
The Netflix deal adds another layer of value for Relativity that HBO, Starz or Showtime cannot, Kavanaugh said: user data. Lots of it.
“Netflix has so much data on their users,” he said. “It allows us to direct-market to the consumer and give them what they want. … if we see that you’ve rented ‘The 300’ three times, we can recommend that they’ll like ‘Immortal.’”
Kavanaugh also cautioned that the media’s obsession with box office is a misguided measure of how a studio approaches the profitability of its films.
“We have 12 movies coming out in the next 11 months; we know who our market is,” Kavanaugh said. “It’s not about the budget but about what’s the worst-case for the movie. Let’s take that, and if we can break even or make a little bit of money, and the upside is a return, then we’re going to look at that movie.”
For example: When foreign pre-sales and tax credits can cover up to 75 percent of a film’s budget – or in the case of “Brothers,” 100 percent – then the box-office returns are pure gravy, no matter how paltry they may look in the Sunday reports.
"It’s the result of little transparency in the business,” Kavanaugh said. “No one knows what those movies cost … but we judge ourselves by our profits.”
If all movies were judged that way, films would be made more responsibly, Kavanaugh said, leading to a healthier industry and a better relationship with talent.
“The talent doesn’t trust the studios anymore – they want their money up front. If they could be judged more on profitability, then the talent’s going to trust (studios) more, and we could change this business to a more profitable business.”
“Do you think that’s realistic?” Wrap News CEO and Editor-in-Chief Sharon Waxman asked Kavanaugh.
“No,” he replied.