The Relativity Implosion

Relativity Media’s descent into bankruptcy has been spiraling for many years, almost since its beginning according to some analysts.

When the company first emerged back in 2004, it was greeted with a mixture of high hope and deep doubt. Relativity promised new approaches and a vague claim to modern scientific methodology but was thin on the details.

The early years were promising. Relativity was making deals with such companies as Warner, Universal and Sony, and also engaged in a long-term distribution deal with Lionsgate. In 2008, Relativity received a $1 billion investment from Elliot Management. They had a crazy quilt of other investments, loans and various open lines of credit. On paper everything looked good.

Except it wasn’t. Despite a handful of successes, most titles from Relativity Media did poorly at the box office. Critical reception of their movies ranged from decent to extremely solid, but the paying public was lacking. The first rule of show business is that when there is no business, there is no show.

Success has a thousand fathers and failure often turns into a wild finger-pointing contest. However, the full measure of what went wrong with Relativity Media will only be fully understood after a convoluted process of bankruptcy proceedings, possible lawsuits, various types of accusations, lots of rumors and sheer speculation have gone full circle. But some key issues are already obvious:

  • There are few if any assets of value, for example, material, film rights, film library, or much of anything else. Most of Relativity’s productions were done in partnership with mainly larger companies where Relativity itself maintained little significant ownership control. Though Relativity functioned as a major player, their production arrangements often left them in the position of the little brother behind the scene.
  • Relativity’s film production revenue stream was minimal. Other business lines, for example clothing, were remarkably irrelevant to film production. Deficits kept production cost and box office chronically out of equilibrium, which were not made up by secondary or alternative revenue streams (see above). Instead, they kept upping the ante without expectation of visible returns.
  • Ryan Kavanaugh’s vaunted data system was supposed to generate a revenue analysis that minimized risk and maximized profit opportunities. Yet the point above strongly suggests there was either no such system, it was not scientific, or they didn’t use it to guide their business decisions. Or all three.

This line of inquiry is enough to make those of us involved in expert systems-building get cranky. The Kavanaugh data system has been kept under tight wraps for a long time. Only now is information starting to appear suggesting that Kavanaugh’s “system” was made up of some pretty basic spreadsheet averages on box office gross for cast and filmmakers by production. No factor analysis or financial interpretation, just barely educated guess work based on past performance ratios. Kavanaugh produced a modern version of what old school studio moguls might have done with a pad of paper and a no. 2 pencil. Personally I suspect he would have been better off using a Magic 8 Ball. Statistically, it would have been more reliable.

Variety and other press reports keep referring to this as a “Moneyball” system. It was nothing of the sort; just a fancied-up regurgitation of the “system” Moneyball was designed to replace. That would also explain why so many of Kavanaugh’s predictions were so far off the mark, and it raises questions about the “scientific” nature of Kavanaugh’s method. Scientific hypothesis is validated based on results. Success tends towards a conclusion that a model is predictive. Failure suggests problems with the model. Continuous failure suggests the model stinks and you need to rethink the whole process. Neither Kavanaugh nor Relativity ever bothered to question their process when it did not work. This is not science. It’s not even low-grade witchcraft. Mostly, it is just gibberish.

Yet despite the uninterrupted series of poor results, no one in Hollywood called their bluff. Sure, a lot of the old guard ignored the idea and went for the wheeler-dealer side of Relativity. But no push-back on the science. The reason for this is simple. Most people in the world of film cannot distinguish between science and spin. All they knew was that Kavanaugh was a brash upstart who could talk the talk; and that was, for a while, good enough for them.

As for those of us who work with real models…our results are promising but the industry interest remains virtually non-existent and the Relativity experience does not help. It’s a bit like a tribe of troglodytes killing the guy who just discovered how to rub sticks together, because everyone knows fire only comes from the sky.

Dennis Toth (C) 2015 All Rights Reserved