Universal signs up $1-billion partner

Universal Pictures and Relativity Media are teaming up with their most sweeping movie co-financing deal to date, adding more than $1 billion to the already massive infusion of outside cash into Hollywood.

The studio and Relativity Capital, a partnership between deal maker Ryan Kavanaugh’s West Hollywood-based Relativity Media and the New York hedge fund Elliott Associates, will co-finance at least 75% of Universal’s movies through 2011, the companies said Wednesday. Relativity Media has previously helped arrange financing for several Universal films.

The latest deal, expected to cover about 45 films, is one of the most striking examples of how studios are shifting their focus from movie financing -- a gamble that can prove costly in today’s era of big budgets -- to marketing and distribution.

“We always look to manage risk and volatility,” said Michael Joe, Universal’s executive vice president. “A deal like this allows us to do that while keeping distribution rights to the movies worldwide.”

In recent years, all the major studios and most of the smaller ones have taken on outside partners such as hedge funds to the tune of an estimated $13 billion.

The huge pool of money from well-heeled investors looking for opportunities outside Wall Street created a ready market for those partnerships.

Such financing deals have become so prevalent that the media conglomerates that own Hollywood studios now routinely build outside funding into the business plans of their film divisions.

“The reliance on third-party capital in the movie business that we are witnessing is not a fad or a cycle,” said David Molner, managing director of Screen Capital International, a Beverly Hills investment firm that specializes in film deals. “It is, in all likelihood, a permanent change in the way motion pictures are financed.”

Universal, which essentially takes care of its co-financing needs for several years with this deal, can withhold no more than two movies per year from Relativity. Relativity, for its part, can pass on 25% of the films offered but can elect to finance all of them.

Other deals have drawn criticism because the studios have been allowed to keep their surest hits to themselves.

In Gun Hill Road I and Gun Hill Road II, the first two funds that Relativity set up to invest with Universal, fewer than half the studio’s movies ended up being included. Those transactions involved movies from Sony Pictures as well as from Universal, about 35 films in all.

In the Gun Hill deals, other investment firms put up money alongside Elliott Associates, which manages $10 billion in assets.

Kavanaugh has been one of the most prolific deal makers in bringing outside investors to Hollywood, but until recently has been known more as a middleman. Unlike the Gun Hill deals, this time he is acting as one of the principals and not just as a broker.

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josh.friedman@latimes.com