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Relativity Media Files For Bankruptcy: What Went Wrong For Once Promising Studio?

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Relativity Media is relatively broke. The studio filed for Chapter 11 Bankruptcy protection on Thursday. It is a shocking turn of events for a studio behind hits such as Limitless and the critically acclaimed The Social Network. Love MTV’s Catfish. It’s another Relativity Media property.

With such successful, well-known movies and shows as part of its stable, there is some genuine surprise that CEO Ryan Kavanaugh is struggling to find the money to pay creditors. According to The Wrap . debt obligations total $320 million. The L.A. Times wrote that total liabilities are about $1.2 billion.

Relativity’s founder declared that the company only has about $560 million in assets.

— Forbes (@Forbes) July 30, 2015

What went wrong for Kavanaugh and his studio? When the company was founded back in 2004, the CEO was determined to put out quality products and to avoid the dreaded “box office bombs.” And for the most part, things seemed to have worked out. But not entirely.

The studio threw money at disappointments such as Joseph Gordon-Levitt’s Don Jon and horror movie Oculus. The company may have over-extended itself through branching out into Relativity Sports, Relativity EuropaCorp Distribution, and Relativity Education. It’s worth noting that, despite the names, Relativity Media is not a majority owner of these projects. As such, these properties were not named in the Chapter 11 Bankruptcy filing.

One direct unpleasant consequence of this turn of events is that about 75 of Relativity Media’s 350 full-time employees are expected to be laid off. The Wrap puts the number closer to 90.

A look at the ramifications of Relativity Media’s bankruptcy filing

— Variety (@Variety) July 31, 2015

Despite the disappointment that arises from filing for bankruptcy, Ryan Kavanaugh expects that it will be a minor and temporary setback for the company.

The plan is to file for bankruptcy protection and stall payment obligations for the time being. At the same time, Relativity will put itself on the market. There is a danger in this because major rivals could be the most interested parties in the end.

Though Kavanaugh hopes to stay at the helm, if certain competitors had their way, he would be out the door. Perhaps that’s why Ryan is reportedly weighing the possibility of becoming a buyer himself. No confirmation of this plan exists, though, as those around the CEO remain tight-lipped about the matter.

Even as Relativity struggles with bankruptcy, the studio plans to go forward with individual projects. A television show based on the movie Limitless is still expected to debut on CBS. As for films, the comedy Masterminds might hit theaters in the fall, but no exact date was given.

This movie and several others now find themselves on ice.

As Relativity Implodes, Filmmakers Are Left in Limbo: Marc Klein has spent the last four months working on a s…

— Actors Red Carpet (@ActorsRedCarpet) July 31, 2015

Relativity Media could bounce back from bankruptcy and successfully organize its finances through court action. However, it’s just as possible that this might be the end of the company as we know it.

Do you think Relativity Media will survive? Share your thoughts below.

[Image Credit: Pascal Le Segretain/Getty Images]

Category: Bank

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