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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.
