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Ryan Kavanaugh Uses Math to Make Movies

11.19.2009

Ryan Kavanaugh's office lobby, on the fifth floor of a formerly modern building in West Hollywood, looks like a lot of office lobbies: Under a battered foam ceiling, a receptionist sits behind a high counter, answering a phone that never stops ringing; on either side of her there are some neglected potted plants, dusty in the fluorescent light; in front of her a glass table has been covered with the type and vintage of magazines normally found at a dentist's. The only difference between Ryan Kavanaugh's office lobby and your office lobby is that Ron Howard is sitting in his, in hiking boots, declining politely the receptionist's offer of a bottle of Yosemite water. "I'm A-okay," Howard says. He's come here this afternoon looking for more than something to drink.

The chances are good that Howard has come here, like many of the people who come here, looking for money. For the most part, money has become hard to find in Hollywood, even for men like Ron Howard. Plagued by a combination of rising costs, the credit squeeze, investor flight, digital piracy, the repeal of arcane German tax laws, and too much crap, the usual vaults have gone empty. The Weinsteins have been told by consultants to cut back their slate to ten films a year, New Line has all but disappeared into the maw at Warner Bros., and Metro-Goldwyn-Mayer, founded in 1924, is on the verge of bankruptcy. No one has any money anymore — no one, it seems, except Ryan Kavanaugh: a thirty-four-year-old onetime venture capitalist and wannabe rock star with messy red hair, a man who refuses to wear anything on his feet but blue Converse All-Stars, even on those rare occasions when he wears a suit. About thirty feet away from the chair presently occupied by Ron Howard, Kavanaugh sits behind a curved zebrawood desk and on top of an estimated $2 billion in liquid assets, much of which comes courtesy of Elliott Associates, a venerable New York — based hedge fund that has $13 billion more where that came from. Which means that if you see a movie sometime in the next twelve months, it's even money that it's been financed at least partly by Kavanaugh through his company, Relativity Media, LLC.

The majority of the movies made by giants Sony and Universal — three quarters of them, in fact — rely on his financing. Warner Bros. has been known to dip into his kitty, and so has Marvel. Atlas Entertainment, where Batman was born, recently struck a coproduction deal with him. Earlier this year, Relativity bought Rogue, Universal's horror imprint, and it will also put out a dozen of its own films — "single pictures," in the local lexicon — next year. All told, Relativity, and thus Ryan Kavanaugh, will produce or coproduce as many as thirty-five movies in 2010.

But what separates Kavanaugh from most producers is not just that he's making movies, it's how he's making movies. Ron Howard has to wait in the office lobby because, at the moment, Kavanaugh is delivering his own pitch to an author who has written a book that a lot of people want to turn into a movie. The author has been making the Hollywood rounds and has spent the last several minutes dropping the names of the famous directors he has met. (Kavanaugh seems unimpressed: He has 10,476 numbers stored on his phone; later, when he goes to the Chateau Marmont for dinner, it takes maybe sixty seconds for Baz Luhrmann to appear out of the foliage and give him a hug.) Kavanaugh counters by telling the author that he, too, knows lots of famous directors — there might even be one waiting in the office lobby — and then he explains to the author why he would be foolish to sell the rights to his book to anyone else. "We might not give you $10 million up front," Kavanaugh says. "But if we tell you we're going to make a movie out of your book, we'll actually make a movie out of your book."

That shouldn't sound revolutionary — it should sound exactly like the point — but Hollywood has long bought much more than it sells. Every year, the six major studios shell out for hundreds, if not thousands, of pitches, scripts, and books, sometimes for millions of dollars a throw; on average, each studio will turn only eleven of those ideas into movies. The rest of all that hope and capital ends up lining shelves and clogging hard drives. "There's no other industry where that kind of waste would be acceptable," Kavanaugh says. "I'm not in this for the art, you know? I don't care about awards. I want to make money. I want to own a business." Since founding Relativity in 2003, Kavanaugh has, by learning from his failures as often as his successes, helped build a new studio model, soaking the guesswork out of movie-making and replacing it with a harder science every step of the way — starting with the idea. Kavanaugh claims that Relativity turns more than 90 percent of the raw material it buys into finished product, an almost ridiculous level of efficiency. He tells this to the author, and he tells the author that the real money comes when movies get made, at the back end, and that the author will surely collect later everything that someone else might promise him now, with the added benefit of boosted book sales and seeing his name in big letters on three thousand screens across America and in 110 countries around the world, perhaps even side by side with Ron Howard's.

The author finds himself nodding, because Ryan Kavanaugh's greatest talent is his ability to make other people nod. The author is still nodding when he leaves the office, walking beside Tucker Tooley, Kavanaugh's president of production. On his way to the elevators, he passes through the office lobby and sees Ron Howard rising from his chair, next in line. He stops, grabs Tooley by the arm, and says, "That was Ron Howard."

Tooley says, Yes, it was.

The author looks as though he has witnessed something like a miracle. "He wasn't lying," he says.

"You can't think of it as money," Kavanaugh says, kicking those blue Converse All-Stars up onto the table in front of him. "You have to think of it as math."

Kavanaugh and Tooley have sat down to talk about a movie they've just lifted from another producer who has, in accordance with modern custom, run out of math. The movie was allegedly complete, but it's also terrible — "I have no idea why it has so many midgets," Kavanaugh says — and it needs some serious overhauling. In Relativity's screening room, with its plush leather chairs and popcorn machine, the movie plays on a white screen with minutes-long stretches of it filled by placeholders, ink-on-paper storyboards rather than celluloid. Those scenes, dreamed up by hired guns so the movie might be made logical and midget-free, now need to be shot. Tooley puts two options in front of Kavanaugh: a ten-day reshoot that will cost one price, or a fifteen-day reshoot that will cost $1 million more. The extra million bucks will give him a killer new fight scene. Now Kavanaugh has to project, in the next few minutes, whether that disputed million is a wise investment — not in the movie as a piece of cinema but in the movie's bottom line. Will that killer new fight scene, after it's been threaded into the trailer and Twittered about at the premiere, yield him more than $1,000,001 in additional box office?

"What I first see is a bunch of numbers," says Ramon Wilson, Relativity's thirty-year-old executive vice-president of business development. A former investment banker, Wilson leads a team of young-turk statisticians — Hollywood's equivalent of Moneyballers — who occupy a cramped, windowless back room littered with empty cans of Diet Coke. On a tall bookshelf, there are rows of thick black binders, each of which has the name of a movie stickered onto its spine: Zombieland, Charlie Wilson's War, Paul Blart: Mall Cop. Before Relativity commits to financing a particular movie — either through its slate deals with Sony and Universal or on its own — it's fed into an elaborate Monte Carlo simulation, a risk-assessment algorithm normally used to evaluate financial instruments based on the past performance of similar products. Enough variables are included in the Monte Carlo for Wilson and his team to have reached the limits of their Excel's sixty-five thousand rows of data: principal actor, director, genre, budget, release date, rating, and so on. After running the movie through ten thousand combinations of variables (in marathon overnight sessions), the computers will churn out a few hundred pages that culminate in two critical numbers: the percentage of time the movie will be profitable, and the average profit for each profitable run. The computers will also calculate the best weekend for the movie to be released, whether Russell Crowe will earn his salary or Sam Worthington will be good enough, and the box-office effect of an R rating versus PG-13. But for Kavanaugh, those are secondary considerations: Unless the movie shows the distinct probability of a return — no one at Relativity will reveal the precise green-light figure, but it's something like 70 percent — the script gets shredded. "Everything has to run on the principle of profit," Kavanaugh says. "We'll never let creative decisions rule our business decisions. If it doesn't fit the model, it doesn't get done."

Now, if Kavanaugh or Tooley are kept awake at night by a script, they might put more effort into massaging the variables — plugging in different actors and budgets, finding the right combination of elements — until the percentages make sense. They'll remain sensitive to the potential for foreign box office, which more frequently rewards challenging material. They'll try to make the numbers add up by keeping costs down, by filming in Hungary (the upcoming Season of the Witch), substituting Puerto Rico for Hawaii (A Perfect Getaway), or convincing Montreal to give them back 25 percent of everything they spend there in the form of tax breaks. They'll encourage creative talent, such as the author, to take their paychecks out of the profit rather than up front. ("Giving actors $20 million for a movie that loses money is like giving bonuses to the CEOs of bankrupt companies," Kavanaugh says.) But if no amount of fiddling and hustle will yield a consistent return, then the dream is over and it's on to the next one.

Some in Hollywood — even more than some — see Kavanaugh as this town's latest false prophet and his talk of regression analysis as so much mathematical flimflam. ("All he's built is a house of cards," says one rival producer.) They read through his catalog of misses and mostly modest hits — in the normal studio equation, a multitude of sin is covered up by a single gigantic success — and wonder how he keeps the money flowing. Kavanaugh says his critics are missing the point. His system is designed to eliminate the dice rolls that made legends and goats of the old moguls — it's designed especially to eliminate the calamitous, crippling flop. "Volatility is a bad thing in any business," he says. "We're just not going to take big risks. That means we'll probably never hit a home run, because the model makes it hard for us to swing for the fences. We wouldn't have made The Matrix. But we wouldn't have made Waterworld, either."

"Rule number one here," Tooley says, "is don't lose your shirt."

It's antiromantic, Kavanaugh's singles-and-doubles model. Maybe it's bad for the future of art. Relativity will never make a movie that bends genres, or is set in Victorian England, or stars midgets. It will never make those movies, because the computers know that we won't go see them, even when they win awards and four-star reviews. "Do you know how many people saw The Assassination of Jesse James?" Kavanaugh asks, referring to one of his most beautiful early efforts. "You and seven other people. Paul Blart grossed nearly $200 million worldwide. I'll take Paul Blart all day, every day." And because he'll take Paul Blart all day, every day — and because he knows New Mexico can double as both the Middle East and Minnesota, and because he knows Natalie Portman is a bigger draw in France than you might reasonably expect — Ryan Kavanaugh still has money, and he's still making movies. He might even save movies, the way he's saving this terrible movie and its bankrupt producer from abject failure by footing the bill for the reshoot (taking place in Montreal, because 25 percent is 25 percent). Now Kavanaugh needs to decide exactly how much of a savior he's willing to be. He looks at the sheets of paper that fill the black binder laid open on his lap. Tooley watches him flip between his two options, back and forth, back and forth... . Just another million-dollar decision. Just more math.

In the end, Kavanaugh keeps his choice a secret. But there's a 96.7 percent chance that you won't even miss the killer new fight scene that's probably not there.

In the chair formerly occupied by Ron Howard, a rabbi now sits. When Mark Wahlberg (who's not Jewish) came here to discuss his starring role in Kavanaugh's upcoming film The Fighter, Wahlberg, for unexplained reasons, brought along the rabbi. Since then, the rabbi has stopped by the office every few weeks hoping to give Kavanaugh (who is Jewish) a blessing. Kavanaugh has not accepted the rabbi's offer until today, which happens to fall between Rosh Hashanah and Yom Kippur. The days between, including today, are set aside for reflection, for righting past wrongs, and for summoning a renewed purpose for the year ahead. "I just thought on the off chance that somebody's watching these things ..." Kavanaugh says. The rabbi comes into his office and gives him a cake wrapped in tinfoil and sealed in a plastic bag. The rabbi then blesses the cake. By eating the cake, the rabbi says, Kavanaugh will ensure that he will not go hungry this year. The cake is a hedge on the bet.

The rabbi sings himself out to the elevators, and the cake sits on Kavanaugh's desk — a reminder that despite his best efforts to turn movies into a conventional, numbers-driven business, randomness persists here, an unpredictable mischief that's been built into the machine. In Hollywood, there have always been variables for which there is no accounting, and those variables remain.

Their persistence means that the computers can't always be trusted. (Kavanaugh is careful to call the Monte Carlo a "rejection tool, not an acceptance tool.") The computers told Kavanaugh that Evan Almighty was a good risk: Its predecessor, Bruce Almighty, had collected more than $480 million in worldwide box office; Morgan Freeman was willing to return in the role of God, and the computers have always liked Morgan Freeman; director Tom Shadyac was set to return as well, having made four movies that grossed nine figures; and it was going to star Steve Carell, who was fresh from the mammoth success of The 40-Year-Old Virgin. But much to Kavanaugh's chagrin, the movie's production budget spiraled out of control (reportedly reaching the head-scratching neighborhood of $175 million), and the fractured marketing campaign — was it a family flick about Noah's Ark, or a teenage poop-and-puke comedy? — left a movie that might have appealed to everybody appealing to nobody instead. "That's one I'd love to have back," Kavanaugh says. "But the fact is, we'll never be perfect. Every movie is like a little company, and any little thing can make it not work. So, sure, sometimes we're surprised when a movie fails to find an audience; sometimes we're surprised when it does."

Whenever they're confronted with either of those scenarios, Ramon Wilson and the rest of the boys in that windowless back room will spit out a single word like an epithet: outlier. They can't say it without holding their hands out at their sides. Outliers represent those dark, unknown edges of the statistical universe that lie beyond the limits of our understanding. When the computers favorably assessed Land of the Lost, they didn't factor in our sudden collective fatigue with having Will Ferrell yell at us. When they ran the numbers for 300 — a movie about an ancient battle waged between mostly naked men starring nobody famous set against a blood-soaked, computer-generated backdrop framed by a cult graphic novel — they couldn't have bargained for anything like its eventual worldwide gross of more than $450 million. Despite the popular opinion that Hollywood has run out of new ideas, some movies still arrive on screens without precedent. Those outliers, good and bad, give even Kavanaugh's conservative model some sense of gamble. No matter how many blessed cakes he receives or how broadly his theories become practice — and they're circulating among the moneyless these days like whispers — Hollywood will never be built on certainty. Hollywood will never do better than probable.

"I wish every movie was 100 percent," Kavanaugh says. "I wish every movie was a sure thing."

Now Ryan Kavanaugh is lying.

Because the truth is, for Kavanaugh, as for all of us, a life filled with sure things would be death. And even though Kavanaugh tries to mask his love of movies with his love of money, he loves movies just a little bit more. He says he doesn't care about awards, but he knows his movies have been nominated for precisely thirty-seven Oscars. He claims he would take Paul Blart all day, every day, but his next movie, Brothers, is a very good film about a love triangle set against the war in Afghanistan. Kavanaugh fell in love with the script for Brothers, not its Monte Carlo numbers — "That one's my baby," he admits — and even though he's erased his risk by recruiting foreign distributors to cover its production budget, it still seems an unlikely bet for him to make.

But there's a poster on the wall of Kavanaugh's office, a tattered one-sheet from what he says is his favorite movie, a movie so unpopular that he could find the poster only in Spanish: En algún lugar del tiempo — Somewhere in Time. It's a 1980 tearjerker starring Christopher Reeve and Jane Seymour as unlikely lovers separated by a half dozen decades, until Reeve learns to close his eyes and open his mind and convince himself that he can travel through time. It was a critical and commercial failure, and yet something about it worked for Kavanaugh. Maybe it was the physics behind it. Maybe it had something to do with where he was when he first watched it or the lens he saw it through. Whatever it was, even he can't explain why, exactly, Somewhere in Time caught hold of him. "It's just an insane love story," he says, his hands held out at his sides. "Titanic was an insane love story, too."

The computers have told him again and again that love is an outlier. This time, Kavanaugh has chosen not to believe them.