Arundel Partners Case Assignment

Arundel Partners Case Assignment

1. Why do the principals of Arundel Partners think they can make money buying sequel rights? Why would a studio sell something for less than what it’s worth? Why do the partners want to buy a portfolio in advance rather than negotiating film by film to buy them?

2. Even though Arundel must commit to the entire portfolio, they pay for sequel rights for each individual film before it is produced and the amount paid is the same per film. Estimate the per-film value of a sequel right for an entire studio’s portfolio of films using the decision tree technique. Utilize Exhibits 6 through 9 for this. What are some of the flaws in the data that you are working with for these estimates? Assume the discount rate is 12% per year.

3. The hidden BIG issue in this paper is the conflict in incentives. Address the following issues. Would the studios and/or Arundel like to include or exclude certain films from this deal rather than committing to the entire production portfolio? If Arundel must unconditionally give the studio a pre-determined amount per film, what might happen to the types and quantity of films that the studios start producing? How might the content of the film be affected? Can you devise any scheme to solve these problems?

• so they can make a second movie if the first one is successful

• or sell the sequel rights to another studio for a higher price

• they don’t know how much the movie is actually worth, so they would rather be getting a fixed amount every time when a movie is made

• they need a lot of cash at the beginning of the production

• so if they buy all the films in a bundle it will be cheaper , it gives you a ability to diversify your investments/risks

• Studio: would like to include the bad movies but exclude the good movies

• Arundel: would like to include the good movies but exclude the bad ones

• Quantity would go up, they would try to make as many movies as they can

• The types of movies won’t be as unique anymore, they might just copy someone else’s idea

• They might try to kill the main character if they had already sold the sequel for a lower price to Arundel

• And they might try to keep the main character alive much longer than he/she is supposed to just so they could keep making money off of selling the sequel rights

Arundel Partners is an investment group that has come up with an idea to purchase sequel rights of films produced by different studio. They would pay a fixed amount to the studio before