Arundel Partners

1808 Words Mar 11th, 2008 8 Pages
1. INTRODUCTION

In 1992, Arundel Partners was looking into the idea of purchasing the sequel rights associated with films produced by one or more major movie studios. Movie rights were to be purchased prior to films being made. Arundel wanted to determine if this innovative business strategy is viable by estimating the value of the sequel rights.

2. OBJECTIVE

Our report aims to investigate the viability of the implementation of Arundel's strategy in purchasing sequel rights to produce potential successful movie sequels. The discount cash flow (DCF) approach and the real option pricing approach were adopted in valuing the sequel rights purchased by Arundel respectively. The value of these sequel rights is then compared to the
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This has been calculated to be $4.96M.

This value of $4.96M is evidently larger than the $2M paid by Arundel for each individual sequel rights.

Optimistic or Pessimistic estimate?
With this value of $4.96M as our value for each sequel rights purchased, we are now allowed to compare it with other values of sequel rights to understand if we were too optimistic or pessimistic in our estimate.

Driving Miss Daisy, Dead Poets Society and Batman were chosen to be the representative movie sequels with their varied sequel rights values that can be compared to $4.96M. They were chosen because they are all one of the most highly anticipated successful films that can generate sequels. In particular, the PV of these successful sequels will help us determine if we are underpaying or overpaying the current sequel rights for each individual movie.

From Appendix 1, it has been determined that the PV of Driving Miss Daisy, Dead Poets Society and Batman are $95.42M, $41.27M and $27.21M respectively. The large magnitude of the PV of these 3 film sequels undermine the relatively smaller $4.96M we calculated earlier.

If the studio obtains information that a film is going to be very successful, there is a probability and incentive for them to hold back their production of the initial film so that the sequel contract with Arundel will expire first. This would imply that Arundel may need to pay a higher value for sequel

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