As Relativity seeks to exit bankruptcy, Netflix remains a hurdle

Relativity Media Chief Executive Ryan Kavanaugh

Feb. 1, 2016 5:16 PM PT

During his acceptance speech at the Screen Actors Guild Awards on Saturday, actor Kevin Spacey made a sly allusion to his new job leading beleaguered movie studio Relativity Media.

“I just want to talk a little bit about the theory of Relativity,” the Oscar-winning actor said. “Because apparently, they say, that if you’re in an elevator, you don’t know whether you’re going up or going down. But right now, it feels like I’m going up.”

But on Monday the company that distributes Spacey’s popular series “House of Cards” offered a dimmer view of the prospects for Beverly Hills-based Relativity Media — and of the acclaimed actor’s position in running it.

In a court hearing in New York, Netflix questioned Relativity’s plan to emerge from bankruptcy protection and raised concerns over the expected leadership roles of Spacey and his production partner, Dana Brunetti.

The global streaming giant has a deal to distribute Relativity movies, making it an important player in the company’s future. Its opposition could be a major hurdle for Relativity founder Ryan Kavanaugh as he seeks approval from the court this week to bring his company out of Chapter 11 bankruptcy.

The Los Gatos, Calif., company, which counts 75 million subscribers worldwide, wants assurances that Relativity can fulfill its commitment to provide a certain number of movies a year for the video service.

Netflix’s lawyers on Monday questioned the involvement of Spacey and Brunetti, asking, for instance, whether they would invest in the studio and what their jobs would entail.

“What’s their role?” asked Netflix attorney Scott McNutt during remarks at the hearing. “It’s great they want to run a studio, but there are fundamental questions.”

McNutt asked U.S. Bankruptcy Judge Michael Wiles to delay the hearing by a week so Netflix would have more time to review court filings, but Wiles denied the request.

Relativity representatives did not get a chance to directly address the Netflix objection at the Bankruptcy Court hearing, which will continue Tuesday. But the company has previously said that Netflix is trying to use the Chapter 11 process to renegotiate its distribution deal with Relativity.

As for its incoming executives, Relativity representatives said Spacey and Brunetti will share “greenlight” authority at the studio — meaning that they can approve what movies get made. In a video shown in court touting Relativity’s upcoming films, Spacey said he was “enormously excited” for the studio’s future.

Under the proposed reorganization plan, Spacey will become chairman of Relativity Studios — the company’s film business — while Brunetti will become its president. The appointments are expected to take effect this month.

Spacey and Brunetti, who own the entertainment company Trigger Street Productions, knew Kavanaugh for years before the Hollywood players began discussions about the future of Relativity. Spacey’s distinguished acting and producing career, as well as his role in helping to revive the storied Old Vic theatre in London, made him an attractive and surprising addition to the studio.

The hiring of the two production partners was seen as a major coup for the struggling company, lending it some much-needed credibility after a string of box-office bombs. Their producing credits include “House of Cards,” “The Social Network” and “Captain Phillips.”

But while hiring Spacey and Brunetti is an important step for the company, it remains to be seen whether Judge Wiles will approve Relativity’s plan to exit bankruptcy, said Teresa Lii, an analyst at Reorg Research.

“It does seem like having Spacey and Brunetti in place is really a game changer,” Lii said in an interview. “But the question is whether the debtors will have the financing in time.”

During Monday’s court hearing, Relativity financial adviser Matthew Niemann praised the company’s improved balance sheet, saying the business will emerge with $20 million in cash and $280 million in debt. The company entered Chapter 11 last July with about $900 million in debt, Niemann said.

Kavanaugh had been trying to raise $100 million in equity financing for the company to exit bankruptcy.

Joseph Nicholas, a Chicago investor, will co-manage Relativity with Kavanaugh and has put $80 million into the company over the last year.

Once it emerges from bankruptcy, Relativity plans to release multiple projects, including horror movies “The Disappointments Room” and “Before I Wake,” plus the Halle Berry thriller “Kidnap” and the Kristen Wiig-Zach Galifianakis comedy “Masterminds.”

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Times staff writer Yvonne Villarreal contributed to this report.