Arundel Partners Essay

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Arundel Partners: The Sequel Project Case Questions (Due: October 5, 2009) To help you prepare for this case you should read the note: Capital Projects as Real options: An Introduction (Available on the Harvard Business Online Website). You cannot use any other data/information not provided in the case. 1a. How are the principals of Arundel Partners planning to make money by buying rights to sequels? They would be interested in purchasing the sequel rights for one or more studios¡¦ entire production over an extended period of not less than a year. If a particular film was a hit, and Arundel thought a sequel would be profitable, it would exercise its rights by producing the sequel. Alternatively, they can sell the rights to the highest bidder. Inevitably, the performance of the original films would not justify sequels, and for them the sequel rights would simply not be exercised. For most movies it becomes quite clear after their first few weeks in theaters whether a sequel would be economical or not, based upon each film's box office performance. 1b. Why do the partners want to buy a portfolio of rights in advance rather than negotiating film-by-film to buy them? It is of critical importance to Arundel that a number of films and a price per film is agreed upon before either Arundel or the studio knew which films would generate the option of a sequel. 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. 2. Estimate the per-film value of a portfolio of sequel rights such as Arundel proposes to buy. [There are several ways to approach this problem, all
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