This should prove to be very enlightening and instructive for those of you not fully aware of the how and why movies get made, as they currently are! Reading this piece from Esquire Magazine titled, Ryan Kavanaugh Uses Math to Make Movies, was rather discouraging, even though it doesn’t reveal much that I’m not already somewhat cognizant of. However, it was all still very saddening, and even maddening that this is what movie making/financing has come to be: content be damned; it’s all about plugging in information into an Excel spreadsheet, and using whatever results are returned, to determine what films get made and which are trashed!

At the center of the article is Ryan Kavanaugh, a 34-year old, onetime venture capitalist, who now runs Relativity Media LLC, which sits on an estimated $2 billion in liquid assets, much of which comes courtesy of Elliott Associates, a New York-based hedge fund, with another $13 billion more where that came from. If you’re not familiar with Kavanaugh and Relativity, you should be, especially if you’re in the business, or plan on enterting the business, at some point, in some capacity.

Why? Well, as the article states, the majority of the movies made by studio giants like Sony, Universal and Warner Bros – about three quarters of them, in fact – rely on financing from Relativity Media. All told, Relativity, and thus Ryan Kavanaugh, will produce or co-produce maybe half of the movies that will be released in 2010. Which means that if you see a movie sometime in the next twelve months, there’s a good chance that it’s been financed, at least partly, by the red-haired, 34-year old Kavanaugh through his company, Relativity Media, LLC. Talk about power, right?

Even as studios continue to be affected by the economic downturn, Kavanaugh and Relativity seem immune! Why? Well, as stated in Esquire’s piece, it’s all thanks Kavanaugh’s system – one based on mathematics, algorithms, etc.

To wit, this section of the piece:

“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.”

And there you go! If that doesn’t concern you, even just a little bit (especially if you’re a creative), then you must have ice in your veins! Are these “kids” (although they’re both in my age group), their computer algorithms, and their 10-thousand permutations, really the future of movie-making in Hollywood?  Given that about 3/4 of some of the biggest movies currently in production are partly or fully funded by Kavanaugh and company, that’s looking to be the case!

As Kavanuagh further states:

“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.”

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…

Sigh. This is how it goes folks… especially if your goal is to work within the Hollywood studio milieu. Not for me, thanks. But maybe you have a stronger stomach than I do!

Read the full 3-page Esquire article HERE. I strongly recommend it, if you’re at all interested in movies!