Triple play elevates Relativity Media

Dealmakers Impact Report 2010

It was a midsummer dream come true for Ryan Kavanaugh, who in the span of one month executed three major deals that positioned his Relativity Media into a full-fledged mini-major and shook up Hollywood’s status quo.

First, Kavanaugh’s company — best known for its ambitious slate-financing partnerships with Universal and Sony — inked a first-of-its-kind deal with Netflix in early July that brings Relativity-owned films to Netflix’s 15 million subscribers during the pay TV window.

A person familiar with the arrangement says it gives Relativity 30 puts a year and will bring in north of $500 million annually, depending on how the films perform. Kavanaugh simply says, “We will get paid more than any other studio on our pay-TV deal, which is a lot less restrictive than other studios’ deals with HBO, Showtime, Starz and Epix.”

That move — widely considered the most impressive of the three given the magnitude of a pay-TV deal — also laid the groundwork for Deal No. 2, which saw Camp Kavanaugh later that month taking over Overture Films’ distribution and marketing ops from Starz. No money exchanged hands, according to Variety’s coverage at the time. Instead, Relativity assumed responsibility for 45 salaries, or two-thirds of Overture’s staff.

“We basically had a blank check from (Relativity’s hedge fund-backer) Elliott (Management) to go get the best available distributor possible,” Kavanaugh notes. “We looked at MGM. We realized that we wanted to do it differently, (with) a studio not mired in legacy issues and undue overhead whose core is around utilizing the digital world to maximize collections, theater counts and profitability. When we found Overture, it was all that and then some.”

Finally, before the ink was dry on the Overture deal, Kavanaugh a week later teamed up with Virgin tycoon Richard Branson. Their joint venture calls for Relativity’s genre label Rogue Pictures to develop, produce and market two to three movies a year with Branson’s newly launched Virgin Produced.

The deal is more than a marriage of renegade moguls. It gives Relativity films access to the lucrative Virgin Air and Virgin Mobile platforms.

“You put all that together, and we’ve turned Relativity into a studio but with a lot less overhead and a lot more profitability than the traditional Hollywood studio,” Kavanaugh concludes. “It’s set up to take advantage of a world that has gone digital and real time.”

The players:

Ryan Kavanaugh
CEO, Relativity
It’s good to be king when your empire continues to annex territory. Kavanaugh, who raised $8 billion in private equity coin during a cash-strapped era, inked groundbreaking deals with Netflix, Overture and Virgin in the span of one month, thus positioning his five-year-old company to compete directly with the studios.
The L.A. native, whose year also included co-financing such hits as U’s “Despicable Me” and Sony’s “The Social Network,” says he is loath to name the company’s most significant pact of 2010. “It’s a little like picking a child,” says Kavanaugh, who bucks Hollywood’s so-called liberal trend as an outspoken critic of President Obama. “My favorite deal was simply taking Relativity to the next level.”

Andrew Marcus
President, corporate development and strategy, Relativity
Even before Relativity struck a series of impressive deals in 2010, the company enjoyed a solid financial footing, thanks to Marcus, who oversees business development. Three years ago, the Harvard Business School grad secured a slew of output deals that previously belonged to New Line — a move widely viewed as one of Relativity’s most savvy.
In 2010, Marcus ran point on the Netflix deal, perhaps the company’s most important of the year. “It was a very complicated deal, but it was also one of the more fair deals,” says the one-time assistant to Harvey Weinstein who joined Relativity a little more than five years ago. “It was a pleasure to negotiate with those guys at Netflix, especially Robert Kyncl (now at Google). And we managed to pull it off in record time — three to four weeks.”
That was no small feat given that the heart of the negotiations took place during the Cannes Film Festival, an already busy time for Marcus, who oversees Relativity’s output deals. “I was in the South of France working L.A. hours and European hours, so basically I was working around the clock during those 10 days,” recalls Marcus, whose busy year also included oversight of the company’s single-picture financing deals, including the Bradley Cooper-Robert DeNiro starrer “Dark Fields.”

Tucker Tooley
President, worldwide production, Relativity
While Relativity’s business and legal trust were busy inking headline-grabbing pacts, someone had to mind the slate. That someone was Tooley, who runs Relativity’s one-off picture business and pulled off an impressive deal of his own in August with the acquisition of Nicholas Sparks’ “Safe Haven.” The book prompted a heated bidding war involving several studios before Relativity plunked down $2 million against $5 million. It debuted a month later at No. 1 on the New York Times best-sellers list.
Tooley, whose 2010 credits include Sparks’ “Dear John” and awards-season contender “The Fighter,” credits his relationship-based style of dealmaking for swaying the author to make a second pic with Relativity.
“With ‘Dear John,’ we involved him in the process even though contractually he didn’t need to be,” explains Tooley, who was an independent producer before he became Ryan Kavanaugh’s right-hand man in production. “He was happy with the movie despite the fact that we changed the ending. My strong suit is getting in there with the talent and making sure everyone is on the same creative page.”

Michael Joe
President, Relativity
There was scant opportunity for Joe to ease into his new job when he defected from Universal to Relativity in June. “I spent the morning figuring out how to work the computer and phone system, then jumped right into the Netflix deal,” Joe recalls of his first day on the job.
The pace has hardly slowed for Joe, who also worked tirelessly on the Overture deal. “The Overture deal itself was not terribly complicated,” says the Stanford graduate, who hails from a small town in Nebraska. “The challenge was we were taking over and absorbing an organization. What was critical was spending time with Overture’s senior leadership and explaining what we were doing, why it was an exciting opportunity and how they would fit into our strategy.”

Ramon Wilson
Exec VP, business development, Relativity
During an intense eight-week stretch, Wilson seldom saw daylight as he quietly hammered out the financial details of Relativity’s takeover of Overture. When the deal closed in late July, Relativity could boast a distribution and marketing operation to complement its finance and production business. “You have to be thoughtful about how you approach structured deals,” notes the Yale grad, who joined Relativity in 2006. “If you are, there’s tremendous opportunity to capitalize during uncertain times.”
Wilson drew upon his experience structuring film financing transactions, acquisitions and partnerships, including his key role in Relativity’s $150 purchase of Rogue Pictures from Universal, a price regarded by industryites as a bargain for Relativity. “As the level of production and output has declined, we have an opportunity to step into a less crowded playing field and really make waves,” he says.

Curt Bajak
Partner, Loeb & Loeb
As Relativity’s outside counsel, Bajak drew upon his expertise in entertainment mergers and acquisitions when hammering out the deal points of Relativity’s takeover of Overture. “When opportunities present themselves, Relativity is very nimble,” says Bajak. The self-described workaholic didn’t encounter the type of hiccups that can delay or derail similar pacts. “You plan for impediments and hope they don’t arise,” he says. Bajak describes his style of negotiating as tenacious but conscious of where the other side is coming from. “At the end of the day, there is no deal unless both sides agree to move forward,” he says.

Mickey Mayerson
Partner, L.A. office managing partner, Loeb & Loeb
As one of Hollywood’s top transaction attorneys, Mayerson admits he sometimes feels bored doing the same deal over and over. But there was nothing tedious about representing Relativity in its precedent-setting pact with Netflix. “This was not a repetition of things you’ve done before,” says Mayerson, who earlier in his career created the legal template for showbiz gap financing. “Now this will become a template.”
As for his lawyering style, he says he both practices and preaches civility. “We’ve been taught to be gladiators,” quips Mayerson, a 29-year veteran of Loeb & Loeb. “But this is a small industry. You can’t take advantage of people. I’m not trying to extract a pound of flesh. I’m there to problem-solve.”

Chris Albrecht
President and CEO, Starz
After a three-year absence from Hollywood’s dealmaking scene, Albrecht returned to the fray with a pact that saw Relativity absorb Starz’s Overture Films. The deal, sealed in late July, was viewed as a win-win for both sides as Relativity realized a long-held ambition to self-distribute its growing slate of one-off films. Starz, meanwhile, was able to unload a troubled asset, freeing up coin for the cabler’s programming. Insiders say no money changed hands, and instead Relativity assumed Overture’s overhead. “With our increased focus on original content, it no longer makes strategic sense for Starz to make theatrical motion pictures,” Albrecht said at the time. Now the former HBO chief is targeting what he does best: bringing content to the airwaves.