Relativity at 10
William Widmer for Variety

If there is one thing everyone can agree on about Ryan Kavanaugh, it’s that he does things differently.

Both supporters and detractors will tell you that the founder and chief executive officer of Relativity Media, which is celebrating its 10th anniversary, has his own vision, and his own way of getting things done. This is the mogul who, when he didn’t care for the trailer for the Relativity release “Brick Mansions,” went in and cut his own. While the average time it takes to earn a helicopter pilot’s license is one year, Kavanaugh got his in 60 days.

“I have never met anyone so ridiculously multitalented,” says Bradley Cooper, who became a good friend after starring in “Limitless” for Relativity. “He really is a Renaissance man.

“I see him working 24/7 and his mind is always thinking outside the box, coming up with new and creative ways to promote and market and present things.”

Hollywood Wishes Relativity a Happy 10th Anniversary:

That included shooting a faux infomercial for “Limitless,” warning about the dangers of NZT, the fictional pill Cooper’s character takes to increase his brainpower, turning him into a certified genius. Kavanaugh even got Virgin Group magnate Richard Branson in on the fun, shooting a promo that credited NZT for his success. “He took chances on great ideas that really were the beginnings of this viral platform,” Cooper enthuses. “He was collaborative and involved in a way that was completely unique for me.”

It’s not surprising Kavanaugh was drawn to a script about a man who can access 100% of his brain — those who know him repeatedly refer to his creative mind, honed by the finance world where he started his career. But since Relativity began, there have been naysayers who questioned such thinking; it seems like a month couldn’t go by without a news item reporting rumors of Relativity’s demise. So there has to be some satisfaction as Relativity hits its 10-year milestone.

FEATURE: Relativity Media Celebrates 10th Anniversary 

Over the decade, the company has grown from a film financier to producing and distributing its releases, generating more than $17 billion in worldwide box office. And other divisions, from music to digital, have been added in recent years. The TV department is behind the reality hit “Catfish: The TV Show,” while developing scripted content that includes a “Limitless” series. Relativity Sports boasts some of the biggest names in the athletic world. Kavanaugh recently announced the launch of Madvine, Relativity’s inhouse ad agency. And within approximately the next 24 months, Relativity is expected to file an IPO.

Sitting in his office in Beverly Hills, Kavanaugh isn’t one to gloat. “It used to be a big driving factor,” he says of the naysayers. “You look at any industry — if you’re not innovating unless people are questioning it. If you’re innovating, you’re doing something nobody’s done before, which means you’re re-writing rules, resetting boundaries, re-creating systems. And that means the traditional industry is going to question it.”

Interview: Ryan Kavanaugh Reflects on Career, Business

Of course, there have been growing pains along the way, but it’s to Kavanaugh’s credit that he’s willing to learn from them. “From the light bulb to Facebook, there were predicted failures the whole time, models that didn’t work,” he notes. “When Edison finally created the light bulb they said, ‘How did you create the light bulb, what was the solution?’ He said, ‘I didn’t figure out how to create the light bulb. I just found out 10,000 ways not to create a light bulb.’ I just reminded myself of that and we as a company remind ourselves of that all the time.”

There is a word that comes up again and again when talking to those who know and work with Kavanaugh: disruptive. It’s intended as the highest compliment, a way of saying that Relativity won’t be held to the status quo.

“It’s a popular word at Relativity for sure,” says Tom Forman, CEO of Relativity Television. “Deep down in the DNA in every division of the company, starting with Ryan, is the notion that you don’t just do something because it’s the way it’s always been done.”

Count bestselling author Nicholas Sparks among Relativity’s fans. The company adapted two of his books, “Dear John” and “Safe Haven,” for the bigscreen and scored grosses of $80 million and $71 million worldwide, respectively. Relativity is currently in production on a third collaboration, “The Best of Me.”

“There is a real emphasis on both excellence and innovation,” Sparks says.

He points to the enhanced e-book edition of “Safe Haven,” which tied into the film with behind-the-scenes interviews from the set of the film. “It was my first enhanced e-book, and turned out to be a huge success.”

He notes that “Relativity is very focused on the fan; much of their promotional approach seems to be about building a direct connection between the movie and the moviegoer ahead of the theatrical release, and they leverage the social media of the movie’s talent early in the process.”

Sparks adds that it’s not just business savvy that impresses them. “They’re also great creative partners, they have good instincts for what works well on the screen when developing material, and they’re incredibly deliberate in finding the right match for the material when hiring talent — whether that be the writer, the director, or the cast. The result is a production that runs smoothly and a film that looks great.”

From Finance to Film

Kavanaugh was born and raised in Los Angeles in what he calls a conservative, Jewish family. He always loved film, and while attending college at UCLA, he initially thought he would be a director. But it didn’t sit well with his parents. “They used to say, ‘You can do anything you want, except go into the film business,’ ” he says with a laugh.

So how did he end up in the film world? “It was a total fluke,” he admits.

Originally, Kavanaugh entered the world of finance, founding a small venture capital firm. The firm shut down after struggling in the aftermath of 9/11, and Kavanaugh wasn’t sure what to do next.

“I was literally thinking about getting my Ph.D. in physics or going to medical school,” he says. “But because money in L.A. is obviously Hollywood-based, so many of my investors in the investment business were studio heads, producers, directors, actors.”

Kavanaugh realized how valuable these relationships were. “There was really no voice connecting Hollywood and Wall Street.”

One person he turned to early on was Jim Wiatt, former CEO of WME and now member of Relativity’s board of directors. Wiatt has known Kavanaugh’s mother, Leslie, since high school, and met Kavanaugh when he was literally in diapers.

“When Ryan started Relativity, we spent a lot of time together and talked about his vision for it,” says Wiatt. “He talked about his passion for a media landscape and thought there were opportunities to do something and create a new vision for a new studio that would (operate) in a really entrepreneurial way and with much smaller overhead. I said, ‘Gee, it sounds like an incredible idea, but how are you going to pull it off?’ He just said, ‘I will.’ ”

Kavanaugh launched Relativity Media with Lynwood Spinks in 2004, using what many people have referred to as a “Moneyball” model of film financing, which is designed to eliminate risk by predicting the odds of a film’s success.

Known as the Monte Carlo model, Kavanaugh says, it “is a pretty common banking instrument that was used in many other industries.” However, it had never been used in the film business until Kavanaugh brought it in.

“People have talked about it as a movie-picking model, and it was never that,” he notes. “It’s a movie-rejection model.”

Kavanaugh explains that Hollywood is built on tentpole releases — big-budget films designed to have big opening weekend. “About somewhere around 75% of a studio’s movies will break even or lose money. And somewhere between 20% and 30% of their movies will make money; about 5% will make a lot of money. Those 5% make up for all their other losses and drive a traditional studio’s profits,” he says. “Our model is quite opposite, and I think that’s what confuses people. If you look at our slate, we don’t project one movie that breaks $100 million in the U.S. box office.”

Instead of aiming for big returns in theaters, Relativity aims to do between $20 million and $60 million in box office. “It’s about making a little bit of profit on most of our movies, so 85%-90% of our movies have made a profit.”

Relativity has some 30 output deals with foreign distribs, which also adds a significant amount to the pics’ bottom lines. In addition, Relativity is the top-performing studio in homevideo.

“Our DVD business is growing at about 20% each year, where everyone else’s is shrinking between 3%-10% ,” Kavanaugh says. “When you look at our movies that are doing $20 million to $60 million in box office, they end up performing like movies that are doing $100 million or $150 million in box office on all the other media.”

Asked if there was ever a time he went ahead and made a movie despite the data being against it, he points to the 2009 drama “Brothers,” starring Tobey Maguire and Jake Gyllenhaal.

“It didn’t meet our model but I fell in love with the script and it was a passion project for me,” Kavanaugh says. “I think I just felt something about the movie and we ended up doing really well on it.”

A Compassionate Visionary

Relativity grew rapidly. In 2009, it acquired Rogue Pictures from Universal. In July 2010, it announced an exclusive deal with Netflix and then acquired Overture Films.

One of Kavanaugh’s biggest coups was pulling off a deal for Marvel Studios in 2005 that kicked off the “Iron Man” franchise — and thus all their subsequent successes.

“When we got involved, Marvel had never made a movie. Marvel was a licensing company that licensed ‘Spider-Man’ to Sony and ‘Blade’ to New Line and ‘Hulk’ to Universal,” Kavanaugh says. “We actually had a bunch of banks kind of laugh at the deal, going, ‘Nobody’s going to see an “Iron Man” movie.’”

Relativity, which began with about 15 employees, has now grown to over 350.

One person who isn’t surprised is Wiatt. “He was passionate, he had a vision, and he’s very good at executing his vision,” Wiatt says. “I’ve worked hard my whole life and been around people that worked hard their whole life, but no one works harder than Ryan. He works all day, all night, seven days a week. He’s the kind of person that won’t take no for an answer. He’s done it all through perseverance, through energy, through strategy and just being a really smart guy.”

Echoes Forman, “He is better at a white board than anyone in town. Better on his feet than anyone in town.”

Forman adds that he warns people coming in to meet Kavanaugh that things may run long. “I usually say, ‘I don’t know how long this meeting is going to last. If he said it’s going to be an hour, it will certainly be an hour, but I can’t tell you that it won’t be two, three, four, five. He’s going to stop to use the bathroom. He’s not going to stop to let you have lunch. If we’re on a roll here, we’re going to just keep going.’ ”

And yet there is another side to Kavanaugh, one that might surprise people who have an image of a cutthroat Hollywood wheeler and dealer. Cooper talks of his “childhood innocence,” which comes out at surprising times.

Visiting the Variety offices, Kavanaugh was absolutely captivated to find a Coca-Cola Freestyle machine, a touch-screen fountain that dispenses all kinds of sodas and syrups — as he paused to take photos, he was grinning from ear to ear.

And his face lights up when he talks about Relativity’s July release “Earth to Echo,” a family film in the vein of “E.T.”

“When people say someone will cut off their right arm for you, he literally is one of the few people who would actually do that,” Cooper says. He relates that when they were shooting “Limitless” in Mexico City, Cooper’s father was very ill and had taken a turn for the worse, and the actor wanted to go back to his hometown of Philadelphia to see him.

To get there, Cooper would have had to change planes in Texas, essentially a 15-hour flight. “Ryan, without hesitation, chartered a plane for me to go home. I was home in four hours. And I’m indebted to him forever. It was one of the first things that made me realize what a great guy he is and how working with them was unlike many other places.”

On the Horizon

While reflecting on the company’s past 10 years, Kavanaugh can’t help but look toward the future.

He’s excited about the launch of Madvine, a way of incorporating brands into Relativity content.

“There’s the traditional product placement model that other studios employ, but because they don’t make their own movies, you end up with a guy in a suit walking on set telling a director, ‘Put this in a movie.’ And it ends up on the cutting room floor,” notes Kavanaugh. “Because the film and television departments don’t work together, they’re not able to say to a brand, ‘We’re going to have a cohesive model.’ ”

But because Relativity covers so many media, Kavanaugh says clients can come in during the pre-production stage and find ways to be worked into the storyline. Such will be the case for Evian water, which will be featured in “The Best of Me.” Under the guidance of CEO Danny Stepper, Madvine already boasts clients such as Absolut Vodka and Mondelez, the parent company of Oreo and Ritz.

Kavanaugh is looking forward to seeing how it plays out.

“I don’t think everybody will understand it,” he notes. “But the advertising agencies will see it and hear it and understand it loud and clear.”

Kavanaugh is also excited to continue working in China, which he became interested in during the shoot of 2006’s “Forbidden Kingdom” in the country.

“When we started, China had maybe 3,000 screens in the whole country. We shot ‘Forbidden Kingdom’ as a Chinese co-production, and it did 30 million American dollars in Chinese box office, which was incredible. That’s when I kind of started focusing on it, and there was really nobody else out there.”

Kavanaugh says Relativity has spent the better part of six years building the highest-level Chinese government, bank and studio partner relationships.

As a result, he says, “We are the only studio still today that has a government-issued distribution license.” This is key because the Chinese government still only allows the import of 34 foreign films each year, and Relativity’s Chinese pacts allow its films exemption from the quota in a market worth $3.5 billion in 2013.

“Last year we released three movies. The market is now 14,000 screens and growing at 12 per day. It’s the fastest-growing industry in China. This year will probably be about three times what last year was.”

Kavanaugh says that since a studio has to go through a third-party distributor, it doesn’t own distribution and ends up getting a pretty small fraction of the receipts. “Because we’re our own distributor, we end up probably getting almost two times what a traditional studio gets.”

And although it recently lost out to Disney in acquiring online multichannel network Maker Studios, last week, Relativity Media made a bid for another YouTube multichannel network, FullScreen. Its 15,000-plus YouTube channels generate more than 3 billion monthly video views and reach 300 million subscribers.

“I can tell you we are in active discussions on a few things,” Kavanaugh allows. “If we weren’t going public in the near future, we would build it. But the fact is, there’s already a number of platforms out there that have audience, but don’t have compelling, original content. Since we own our content and there’s a number of those assets out there, there will be a case of 1 + 1 equaling 11.”

And there’s no one who’s going to question Ryan Kavanaugh when it comes to math and movies.

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