Major studios don’t usually do that. They may spend millions to acquire the rights to, say, a best-selling book, even if there’s no guarantee it will be turned into a movie. That adds to their overhead and increases the pressure on majors to hit those home runs.
Meanwhile, Relativity can make money without a blockbuster on its slate because it controls upfront costs and has unique deals with film distributors on the back end. Namely, unlike most major studios, who own their own distribution companies, Relativity has contractual relationships with 117 distributors around the globe, each of which is under contract to buy any movie Relativity makes at a preset percentage of the film’s budget. In return, the distributors are guaranteed a piece of the back-end revenue for each movie. For Relativity, the structure is a safety net for films that underperform — a net the major studios don’t have.
That’s how the studio made so much on Limitless. The film’s budget was less than the total amount Relativity knew it would take in from foreign distributors. In other words, if the movie tanked, Relativity would have lost nothing. That’s key when a movie under?performs. Julia Roberts’ Mirror Mirror, for instance, cost $80 million to make and has, to date, brought in a mere $65 million domestically and $180 million worldwide. Because of its distributor deals, Relativity still made money on the picture. “For a major studio,” Kavanaugh says, “that movie would have lost quite a bit of money.”
It’s all of that hedging and number-crunching that has made Relativity money, Kavanaugh says, and even made it profitable. And he expects the bottom line to be helped further by Relativity’s expanded sports agency, which now represents 400 athletes (with 145 players in professional leagues), as well as its reality-TV production outfit.
Over the long term, Relativity is banking that it’ll stay in the black thanks to something Louis B. Mayer couldn’t have imagined: a social-media brand called ?RogueDigital. “We believe we can be the conduit for the everyday person — the YouTube stars, the top people on Facebook, on Twitter — to ?converge with the movie stars we know today,” Kavanaugh says. “We believe those people are just as important as the stars.”
If he’s right, he’s going to need a bigger hangar.
Frequent American Way contributor JOSEPH GUINTO has not been to Cabo and has no famous friends, but he has been to Capri and he has had a hangover.