Arundel Partners Case Analysis Essay

1. Arundel has an interesting idea to buy rights to movie sequels. Their theory is that they can make a profit by securing sequel rights and providing seed capital to films even before production starts, thus avoiding the asymmetric information problem that would arise as the film progresses and the studio gains more and more inside information about the film's prospects. Buying rights in advance allows Arundel to buy rights to the sequels of eventually successful movies much more cheaply than after their success is proved, and also eliminates any potential bidding wars that may arise for sequel rights to successful films. Furthermore, securing a (relatively) inexpensive option to potentially tremendously

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

With the purchase of sequel rights, what Arundel is achieving is to have a call option on the revenue that each movie brings. This helps to remove the uncertainty and risks associated with producing a movie, especially with regard to moviegoers’ taste. With the sequel right, Arundel will only exercise this option to produce a sequel if the first movie proved to be popular and the sequel is hence predicted to bring in profits. This provides downside protection, as huge losses (due to high production costs) associated with a failed movie will be avoided.

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

3. Visit the top 15 movie stocks according to HSX (http://www.movies.hsx.com/moviestockindex.htm). Do you agree with the predictions of the Hollywood Stock Exchange? How would you use a tool like this if you were a movie producer?

* S is the present value of net inflows of hypothetical sequels at year 4; we attached different values to S for the various studios using an average of the present value of net inflows of hypothetical sequels of each studio in 1999 (found in Exhibit 7). S was also computed for the overall portfolio using an average of the present value of net inflows of hypothetical sequels of all studios.

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.

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?

After evaluation of the proposed acquisition of the movie sequel rights, we recommend to offer movie studios as a per-movie price to purchase the sequel rights for their entire portfolio of movies the studios are going to produce over the next year.

In 1995, the Federal Communications Commission’s financial interest and syndication rule expired, which had major impact on the film industry. This meant that many of the big Hollywood companies had to merge and create what’s called the megamergers. Because so many of the companies merged, the significance of the independent cinema movement increased since not many small, but great ideas would be able to come to the light. Some artists with unique film vision and ideas would be unable see their ideas in green light from megamergers.

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.

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

The following are the factors that created an opportunity for Bob Reiss and TV Guide game:

This paper analyses the financial performance of the Walt Disney Company during FY’15 using profitability, liquidity, asset management, and debt management ratios, along with the DuPont system and a measure of Economic Value Added (EVA); and recommends purchase of the stock.