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Relativity Media signs up 20th Century Fox as its DVD distributor

The deal is one of the last steps in Relativity's transition from a film financier into a bona fide studio. Fox has its work cut out for it because the first three Relativity films it will release on DVD and Blu-ray discs were box-office duds.

March 11, 2011|By Ben Fritz, Los Angeles Times

Relativity Media has signed a four-year agreement with 20th Century Fox for the studio to release Relativity movies on DVD as the independent company attempts to transition from a film financier into a bona fide studio.

The first three movies to be distributed by Fox were all box-office flops, illustrating the challenges that Relativity, led by Chief Executive Ryan Kavanaugh, faces now that it is fully financing and releasing its own pictures.

After losing money from its co-financing partnerships with Universal Pictures and Sony Pictures over the last five years, Relativity and its backer, hedge fund Elliott Associates, are hoping to do better by developing and controlling their own films.

If the strategy is successful, Relativity would be in a stronger position to pursue its ambition to go public, enabling Elliott to recoup some of the $1 billion-plus it has invested in the company.

Last summer, Relativity signed with Netflix to stream its movies online during the period when films customarily air on pay TV channels such as HBO. The company also has partnered with various foreign distributors to release its movies in theaters and on DVD overseas. Finding a studio to release its DVDs in the U.S. was one of the last remaining pieces for Relativity's strategy.

"Fox has great experience distributing DVDs for third parties like MGM and New Regency, which was very important to us," said Steve Bertram, Relativity's chief operating officer.

Although Fox will handle marketing and distribution for DVDs and Blu-ray discs, Relativity has retained the right to manage online distribution.

"Given that the business is still going through its transition to digital, we felt it was strategically important to retain control of that," Relativity President Michael Joe said.

In late spring or early summer, Fox will release the first two Relativity movies: the action film "The Warrior's Way" and the Nicolas Cage period picture "Season of the Witch." The films grossed $5.7 million and $24.8 million in the U.S., respectively. The studio's most recent release, "Take Me Home Tonight," sold $3.5 million in tickets in its opening weekend.

Despite the films' soft box-office performances, Mike Dunn, president of home entertainment for 20th Century Fox, said he thought the pictures could perform comparatively well on DVD because of their genres.

Relativity is ramping up production, with such big-budget pictures in the works as the ancient Greek-era action movie "Immortals," due out in November. The company has seven movies scheduled for release this year and is aiming eventually to raise that number to 12 to 14 annually.

Relativity recently received about $100 million in fresh capital from Elliott, according to people familiar with the matter. The company hopes to use it as leverage to raise a new debt facility of several hundred million dollars to fund productions and marketing costs, the people said.

Relativity's agreements to co-finance films with Sony and Universal expire in 2012 and 2015, respectively, and Kavanaugh has said he does not intend to renew them.

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