Two long-standing witticisms help set the stage for just how averse the film industry is to new ideas. The first goes like this:<\/p>\n
\u201cNot one person in the entire motion picture field knows for a certainty what\u2019s going to work. Every time out it\u2019s a guess, and if you\u2019re lucky, an educated one.\u201d \u2013 William Goldman<\/p>\n
And the second:<\/p>\n
What\u2019s a great way to make a small fortune?<\/p>\n
Start with a big fortune and invest it in the film industry.<\/p>\n
Since the advent of the Hollywood studios in the early 20th<\/sup> century, reliably predicting and investing in box office successes has proven to be a fool\u2019s errand. Any number of sure-fire strategies, equations, and harebrained ideas has been attempted, often with the backing of a new-to-the-scene entrepreneur with the charisma and marketing abilities to convince financial backers that he or she has finally cracked the enigmatic film industry. Invest now and profits are sure to follow.<\/p>\n Enter Ryan Kavanaugh, the young, brash founder of Relativity Media who often made that very claim \u2013 he had cracked the Hollywood code using incredibly detailed quantitative analysis that helped his company determine exactly which films to produce or help finance in order to achieve sustainable profitability. Kavanaugh enthusiastically stated that Relativity\u2019s goal was to \u201ctake advantage of and help fix inefficiencies in the market. Media businesses in general are built on protocols that, in some cases, were established 100 years ago. The entire film business is still run around theatrical, yet theatrical is only 20 to 25 percent of the pie. While there\u2019s a big correlation, box office certainly isn\u2019t the judge of profitability. I\u2019ve looked at the film business today, and I\u2019d like to think that we\u2019ve helped make it a more profitable business\u2014for us and a lot of other people. \u201d<\/p>\n Relativity Media\u2019s fundamental claim is that it understands the reams of data pouring out of the film industry better than anyone else in town. When deciding whether to back a film, the company uses a series of regression analyses pulled from the box-office and other performance metrics generated by every single film released during the previous 10 years. The company slices the data for as many variables as it possibly can in order to divine which variables actually imply correlation with a film\u2019s overall profitability. It then uses this information in determining which films the company should produce, with the aim of generating industry leading returns on invested capital due to film out performance.<\/p>\n