Why the Algorithm That Promised to Save Hollywood Destroyed Relativity Media

Relativity Media claimed they'd cracked the box office code. Then it all went horribly wrong.

In 2004, Ryan Kavanaugh and Lynwood Spinks founded Relativity Media. Kavanaugh drew in billion-dollar investments from the hedge fund Elliott Management and claimed that Relativity could reduce the risk in the uncertain business of filmmaking by using a Monte Carlo model. They said it was the future of Hollywood. In reality, it was an epic failure.

After producing and releasing films for nearly a decade, on July 30th, 2015, Relativity filed for Chapter 11 bankruptcy following protracted lawsuits and missing loan payments.

Why did Relativity Media’s Monte Carlo model not work? Is there no way to use algorithms to make better decisions in the film industry? We discuss these questions and more below.

​Relativity Media found a non-risky way to steadily lose investors' money.

How does the Monte Carlo method work?

Simply put, the Monte Carlo helps us think about and observe risk by incorporating probability instead of point estimate.

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