Limelight–and by this I mean positively glowing publicity– shines only occasionally on quantitative analysis, and rarely on Monte Carlo simulation. But there was, 6 years ago, Michael Lewis’s Moneyball, which established a place for statistical analysis in major league baseball. Now there is Relativity Media, LLC, currently one of the heaviest hitting movie production companies in the business, and, more specifically, there is Ryan Kavanaugh, its CEO, and Ramon Wilson, its executive vice-president of business development.
Two things about Kavanaugh and Wilson make them unusual: they are leading a movie production firm that is not only alive but growing, and they use quantitative analysis for lots of decision making under uncertainty. What can be more uncertain than investing in a movie? Only somewhat unusual for the movie business is the fact that these two decision makers are under thirty-five–it’s a youth oriented business–and maybe this is correlated with their emphasis on making decisions by the numbers.
"You can’t think of it as money," Kavanaugh has been quoted
as saying. "You have to think of it as math." Given the multimillion-dollar budgets Relativity underwrites–the raw size of the risks involved–it’s probably more comfortable for everybody at Relativity to think math. The kind of math Kavanaugh is particularly devoted to is Monte Carlo simulation, and he talks quite openly about his company’s use of it. When it comes to variables, he names names: principal actor, genre, director, release date, PG or R, although in all probability (sorry), each of these variables is probably a set of variables.
"Everything has to run on the principle of profit. We’ll never let creative decisions rule our business decisions. If it doesn’t fit the model, it doesn’t get done." That doesn’t mean, he has explained, that if he really likes a project, he and Wilson can’t juggle the variables to make the film project fit the model. They change the parameters to reveal the path to profit. And profit he has–the estimated assets of Relativity are about $2 billion.
So Kavanaugh qualifies as a mogul, a math-for-movies mogul. When the spotlight falls on him, Monte Carlo simulation isn’t far out of it.