Relativity CEO Ryan Kavanaugh: 'China Is Just as Important to Us as the U.S.'

2012-35 REP Ryan Kavanaugh P

The battle for Ryan Kavanaugh's reputation is on. In the wake of an explosive article in the Oct. 8 issue of The New Yorker that portrays the Relativity Media CEO as having forfeited control of his studio to investor Ron Burkle, Relativity is vowing a major lawsuit against the magazine.

In an interview with THR at the Shanghai film fest, the exec explains his big bets in China, including new equity investments from a state broadcaster and a local investment firm, and a distribution deal with a government agency.

The Chinese market is just as important as the United States for Relativity Media’s future expansion, said CEO Ryan Kavanaugh, and the studio has dramatically increased its presence in the world’s second-largest film market to drive that growth.

“We view China as being as important as the United States for Relativity. We’ve put a big bet on China, and the partnerships we announced today will further strengthen the robust foundation we have built in China,” said Kavanaugh in an interview with The Hollywood Reporter.

It’s been a busy few days at the Shanghai International Film Festival for Relativity.

PHOTOS Johnny Depp's First Trip to China

The company announced an equity investment and distribution agreement with Jiangsu Broadcasting Corp. (JSBC), signed a strategic advisory agreement with the world’s biggest bank, the Industrial and Commercial Bank of China (ICBC) and was appointed international distribution partner by China Film Promotion International (CFPI) to distribute Chinese films overseas.

SeedShine Capital, a Chinese investment firm focused on the media and entertainment sector, has entered into a deal to invest in Relativity. Financial terms were not disclosed, but sources close to the company estimate the value of the combined investments to be in the hundreds of millions of dollars. 

“Our goal is to increase our output to five or six films a year in China, to build up our sports and fashion business with JSBC and work with ICBC for a listing in Hong Kong,” said Kavanaugh.

“ICBC is the final piece, they did due diligence on us and the bank is the right partner for when we go public,” he said.

Chinese box office last year was up 27 percent at $3.6 billion and it is tapped to outgrow the North American market within the next five years.

“Right now China is all box office, but we see it as an infancy market. There is still room for 10 times as many screens as there are now before it becomes saturated. We’re setting ourselves up using ICBC so that we can properly exploit the whole market,” said Kavanaugh.

STORY Shanghai Film Fest: Relativity Partners With State-Owned Jiangsu Broadcasting Corp

“In the steps of growing China further, the JSBC agreement is taking our TV and sports and fashion business and expanding way outside of film, to co-develop Chinese and international film, television, and sports content with one of the preeminent media companies in China,” said Kavanaugh.

Relativity owns a Beijing-based film distribution and financing outfit in Beijing called SkyLand Entertainment. This was originally launched as a joint venture between Relativity, IDG China Media Fund and SAIF Partners, but is now a wholly owned subsidiary of Relativity and maintains a close strategic relationship with the government-run distributor Huaxia. Recent Relativity films released in China include Immortals, Mirror Mirror and Free Birds.

Hugo Shong, founding general partner of IDG Capital Partners and a member of Relativity’s board of directors, said the partnership would “provide us with the added financial services and network to help Relativity capitalize on the significant opportunities in the Chinese market.”

China is a unique market with a very different business culture from that of the U.S.

“In China there is no separation between business and government. The decision-maker has to be there when you are doing business. It has to be by Chinese rules; you can’t just throw money at it,” said Kavanaugh.

“The Chinese government has gotten more selective about who it works with. When I was here in 2005 no one was here. China has to interface with everyone and they have recognized that American firms have a hard time doing business if it’s not the American way of doing business,” said Kavanaugh.

CFPI is mandated by the state media watchdog, the State Administration of Press, Publication, Radio, Film and Television, to promote Chinese films internationally, and it will distribute select Chinese-language films in the U.S. and help to promote Chinese language films at various major film festivals overseas. Relativity will receive a distribution fee in return for its services.

Gu Guoqing, head of CFPI, said the linkup with Relativity would help domestic filmmakers in China.

“CFPI and Chinese filmmakers will benefit from Relativity’s strong international distribution network and track record of success as one of the fastest growing film studios that is breaking new ground in Hollywood with its seamless multi-channel platform,” said Gu.

“This partnership is an important step for the Chinese film industry and we look forward to working with Relativity to promote high-quality Chinese films abroad.”

Imperial Consort Yang, currently in production, is expected to be the first film that Relativity will distribute in the U.S. in partnership with CFPI.

The movie is a love story about Yang Guifei and Li Longji, also known as Emperor Xuanzong of the Tang Dynasty, and is directed by Cheng Shiqing (writer of Codename Cougar) and features Fan Bingbing, Leon Lai, Wu Chun, Joan Chen and Ning Jing.

“Relativity is an ideal partner to help drive CFPI’s mission of bringing Chinese films to international audiences," added Gu.

Proceeds from the SeedShine Capital and JSBC investments will be used to support Relativity’s core business strategy, which aims to increase the company’s release slate to over 15 movies by 2015-2016, expand Relativity’s digital offer to include increased content creation and distribution via investments in mobile, Internet, multi-channel network and over-the-top space capabilities.

The group also hopes to carry out strategic acquisitions of complementary film and television libraries, television production and distribution networks, and advertising and branding agencies that fit with Relativity’s existing infrastructure.

Twitter: @cliffordcoonan