Arundel Partners

Paramount took advantage of Ms. Marder when they purchased her story. They saw the story as a great investment, especially for the small amount they paid

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

A group of investors (Arundel group) is looking into the idea of purchasing the sequel rights associated with films produced by one or more major movie studios. Movie rights are to be purchased prior to films being made. Arundel wants to come up with a decision to either purchase all the sequel rights for a studio's entire production during a specified period of time or purchase a specified number of major films. Arundel's profitability is dependent upon the price it pays for a portfolio of sequel rights. Our analysis of Arundel's proposal includes

The volatility we used is the industry volatility approximated from the standard deviation of returns from 99 movies’ sequel. When we are evaluating a quoted price of a sequel right, 9.2728 will be a good bench mark. According to our simple NPV analysis, we would reject the

For calculations of the acquisition price, the P/E is taken to be 8.6. The acquisition price is calculated by multiplying this value with the historical average of net income. Thus, the acquisition price comes out to be $186,215,800, which is $189,186,673 less than the enterprise value.

(Hint: A warrant’s exercise value is the difference between the stock price and the purchase price specified by the warrant if the warrant were to be exercised.)

a. What makes Arundel think it can make money by buying a package of sequel rights? Is the profit opportunity, if it exists, likely to be sustainable?

company. The technology used to film and edit programming impacts the operations and distribution of the company’s original content. Within procurement’s 33% share of revenues, technology makes up the largest share as firms in this industry must invest to compete. The linkages here are vertical; without the newest technologies, it takes longer to produce and edit new series to the standard customers expect. If Disney’s technologies fail to deliver visually high-quality content in a timely manner, consumers will watch elsewhere.

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.

5. Assume that a maximum of ten sequels can be made in any given year (choose the sequels that are most likely to be made—for example if the main character in the film dies then a sequel is unlikely to be made) Using the same decision-tree approach, what would you estimate to be the per-movie value of the sequel rights to the entire portfolio of 99 movies released in 1989 by the six major studios?

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.

1. Why do the principals of Arundel Partners think they can make money buying movie sequel rights? Why do the partners want to buy a portfolio of rights in advance rather than negotiating movie-by-movie to buy them?

Arundel should make an offer to buy sequel rights as the average NPV (on a per film basis ) is $5.51 mn (this is the value calculated using real options method).

4. The bargaining power of buyers: The outlook for the target market isn’t favorable for the movie industry because it will not be growing as fast as the overall population. Buyer power is a strong force because of the target market and several other factors including: the undifferentiated product offered, switching to an alternative is simple and low cost, and customers can stay home and watch movies. The consumers are also complaining about concession and ticket costs, along with the advertisements before the film is shown.

Based on our valuation of the investment, as outlined below in the Analysis portion of the report, we have determined a per-movie-value of $8.9 million when considering purchasing the rights to the entire portfolio of 99 movies analyzed in the sample data. Based on production of 10 sequels, the per-movie-value of the portfolio would be $52.25 million. Our calculations based on the hypothetical portfolio is that Arundel Partners should make this investment as long as the present value of the expected cash flows from the sequel revenues exceeds the cost of production plus the cost of the investment. Depending on what value a studio will accept as payment per sequel, there appears to be significant profitability in the investment.