Arundel Partners: The Sequel Project

The maximum per-film price for the sequel rights that Arundel Partners should pay is $5.12M.

Given our analysis of the motion picture industry, we recommend that Arundel carefully select the major film studios from which they intend to purchase sequel rights. The net present value of hypothetical sequels taken from the available previous years shows not only that the industry is highly volatile, but also that certain production studios are more volatile than others in terms of their recent performance. In addition, some studios are consistently less profitable than others. (See "NPV for Each Production Company" chart in appendix) Since the success of film studios are relatively stable in the short term (see "Rental Shares of Major Film Distributors" table and graph) Because of this stability, it is possible for Arundel to approach more profitable studios with their offer to purchase sequel rights. Out of all the major film studios, only MCA-Universal, Warner Bros., and The Walt Disney Company generate a positive net present value on a per-film basis. However, according to casual inquiries, it is unlikely that any movie studio would enter negotiations with Arundel on a per film price that is less than 1 million. Instead, the film studios seem to

In addition, once production started, the studio would inevitably form an opinion about the movie and the likeliness that a sequel would be possible. This would put Arundel at a disadvantage, because they would then have to negotiate the price for sequel rights on each film produced, while knowing much less than the production studio about the film.

To equal $6,697.44, the stock price must increase to at least $37.23[2] at the end of the 5th year. The stock price has to be higher than $35 in order to be exercised and make a gain, otherwise she will leave it expire worthlessly. However, from Exhibit 2, Telstar stock price has

4. Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?

Main Line is also not entitled to the differential profit loss by comparing Basinger films to Fenn films. It is understandable how Main Line thinks they are because Basinger films do make more than Fenn films, but who can say with certainty that this would have been the case in Boxing Helena--a controversial and unconventional film to say the least. Again I direct your attention to the Bruce Willis and Whoopi Goldberg movie flop argument.

1. Ignoring taxation and other constraints, Ms. Jameson is better off taking the options. The stock currently trading at $18.75 and the exercise price is $35. This may seem drastically far away. However, 5 year T-Bill rates are currently at 6.02%. Combined with a current stock volatility of approximately 42%, this allows each option to be valued at approximately $4.93.

Arundel can make money selling the rights to a higher bid. Another option to make money is by producing the sequel exercising its rights but this will depend on if the net present value of the production movies is higher than the amount of buying the rights. If the future positive cashflows are undervalued Arundel can seek an arbitrage

Apex Investment Partners was founded in 1987 by James A. Johnson and the First Analysis Corporation. In its eight-year life, the VC had raised three funds. The two first which are already closed had, together, a committed capital of around $70M. There were mainly concentrated in four areas: • • • • Telecommunication, information technology and software. Environmental and industrial productivity-related technologies. Consumer products and specialty retail. Health-care and related technologies.

In this case, a movie industry analyst is asked to evaluate a proposed venture in which a group of partners would purchase the sequel rights to movies produced by the major studios. Your objective is to 1) discuss and evaluate the basic concept; 2) determine the value of the sequel rights on a per-movie basis; 3) evaluate the possible upside and potential drawbacks to the proposed plan. As you will see, the ideas here incorporate elements of capital budgeting coupled with a “real options” analysis.

Based on the previous module assessments, NBC Universal’s preliminary focus should be geared toward the film industry. The recent trade deal, between both the U.S. and Chinese Governments, lowered a 20-year-old quota on U.S. films and distribution fees in the Chinese film industry. This signifies productive progression within the film industry, even though small in nature, but nonetheless this could equate to significant profit gains for all the FMO’s within the market.

The studio’s executives were in shock after watch the movie that looked fantastic and it was an epic on a grand scale, but there is no way the studio could commercially release a film that was over five hours long. Frazier being forced to cut the film becomes two hours long. The movie was shortened, but now it made no sense. Characters appeared and disappeared randomly, the plot was impossible to follow, and the dialogue did not make sense at a several key points. The film was disaster. The reviews of the film were terrible, and audience stayed away in droves. On a total outlay of $90 million, the studio recouped less than $9 million. The studio releasing the five and a half hour version of the movie, but it made no difference to the overall financial results.

The proposed business venture, Arundel Partners, is an investment group which would purchase the sequels rights associated with all films produced by 1 or more selected U.S. movie production studios for a specified period of time, or a specified number of films. As your investment analysts, our goal is to assess the value of the sequel rights to allow a determination of the value of the overall investment as well as a reasonable price-per-film for the sequel rights.

To still earn from the movie because film producers don’t want to lose that much money.

If the price for M&S share shoot up to $30 next month, Ken can exercise the option and Bob is forced to sale his shares at strike price. This means Ken can buy 100 shares from Bob for $2000 plus $200 fee paid for the option and sale them for $3000, his profit is $800. Ken gets to participate and involved in the movement of the stock at the fraction of the usual price.