Relativity's Ryan Kavanaugh Lashes Out at Netflix (Exclusive)

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The streaming service is questioning who will be running Relativity when it emerges from bankruptcy, but the mogul says that's a ploy to renegotiate its deal.

A war of words has broken out between Relativity Media’s Ryan Kavanaugh and Netflix.

The streaming giant raised an objection in court filings Thursday in the Relativity bankruptcy proceeding, saying that there is “considerable confusion” over who exactly will be running the studio when it emerges from bankruptcy under its currently proposed plan. Netflix questioned whether Relativity would be able to meet its commitments, including an obligation to deliver a set number of films and ensure exclusivity under an existing deal that runs through 2018.

In his first public response, Kavanaugh criticized the streaming service, telling The Hollywood Reporter, “Netflix suffers from what everyone used to call 'Yahoo syndrome.'” He accused the streaming service of getting “cocky and too big for their own britches.”

Netflix is attempting to rule out the assumption of its old licensing agreement with Relativity. The streamer contends that Relativity hasn't identified the source of its new exit financing and even if it does, can't adequately assure performance of obligations once it exits Chapter 11. The question over who is running the show is aimed at supporting these arguments. As Netflix’s objection represents hundreds of millions in revenue and a potential threat for Relativity 2.0, Kavanaugh is now on the attack.

He argues that Netflix is simply trying to renegotiate more favorable terms, explaining, “We made our deal with them in 2010 when not only would no other studio work with them, but there were public and known blacklists prohibiting studios and television companies from working with them. For the first few years after we made our deal, we were their knight in shining armor. Just look at Netflix even today. It's mostly Relativity movies.”

Kavanaugh continued, “Since other studios jumped on the bandwagon, Netflix was able to cut better and better deals and give less and less. That is why I personally made sure our deal lasted until the end of 2018. They have tried to renegotiate a dozen times, and the economics never work except highly in their favor. They have tried to use people close to both of us to encourage us to change our deal in their favor. However, our shareholders are not going to just give away hundreds of millions of dollars because other studios have now chosen to follow our lead.”

Kevin Spacey, star of Netflix’s House of Cards, and Dana Brunetti, Spacey’s producing partner at Trigger Street Productions, find themselves in the middle of the dispute.

In its objection filed Thursday, Netflix pointed to word that Kavanaugh and hedge-fund magnate Joseph Nicholas will be on the company’s management board, raising the question of who will have day-to-day responsibility for films.

"The management questions are compounded by reports that Relativity has entered into agreements with Spacey and Brunetti to manage its operations, in connection with a transaction with Trigger Street Productions," Netflix's court papers stated. "Relativity’s Jan. 6, 2016, press release specifically states that Mr. Spacey will be Chairman and that Mr. Brunetti will be President of Relativity. This creates considerable confusion in light of the subsequent statements in the Plan Supplement indicating that Mr. Kavanaugh and Mr. Nicholas will be co-managers of the Reorganized Debtor."

The larger issue is whether a reorganized Relativity can get its ducks in order to deliver what Netflix is expecting under a licensing deal.

Kavanaugh responded, “Any claim we have breached a contract, have failed to meet minimums or in any way that our contract is not valid, is yet another hollow and shameless attempt by Netflix to abandon a valid and standing contract with Relativity and their first believer. The reason they don't actually point to any breaches is there are none, they just don't want to honor their original more, humble agreements. I am confident the judge will see right through their shallow and completely frivolous filing.”

Kavanaugh also said, “Netflix, as any other studio will tell you today, has gotten cocky and too big for their own britches. In 2009, they promised shareholders they would never again attempt to make their own content after losing close to $100 million on trying to make their own films. Top filmmakers today say it is difficult to work with Netflix because they think they know more about the creative than anyone.”