Arundel Partners
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 estimated $2M per film required in purchasing the rights to see if Arundel will gain by purchasing these sequel rights.
3. STRATEGY
Before we go on to evaluate the value of the sequel rights that can be purchased by Arundel, we will first consider the Arundel's reason behind the purchasing the sequel rights before the first films are even made.
Arundel hopes to escape the riskiness of producing a movie in the movie industry for a price by purchasing the option to produce potential successful sequels. Moviegoers' tastes are unpredictable and predicting the success of any film was almost impossible. Therefore, Arundel used an innovative way of managing this risk by only purchasing sequel rights to films even before they are produced so that they can go on to make sequels for successful first films.
Arundel has chosen to purchase a portfolio of sequel rights from one or more major studios. This is probably because Arundel does not possess the necessary knowledge in determining which movie will turn out to be successful and have potential for sequels. Without this knowledge, Arundel has to diversify and purchase a whole portfolio of sequel rights from the different studios in order to guarantee the rights to any future
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 estimated $2M per film required in purchasing the rights to see if Arundel will gain by purchasing these sequel rights.
3. STRATEGY
Before we go on to evaluate the value of the sequel rights that can be purchased by Arundel, we will first consider the Arundel's reason behind the purchasing the sequel rights before the first films are even made.
Arundel hopes to escape the riskiness of producing a movie in the movie industry for a price by purchasing the option to produce potential successful sequels. Moviegoers' tastes are unpredictable and predicting the success of any film was almost impossible. Therefore, Arundel used an innovative way of managing this risk by only purchasing sequel rights to films even before they are produced so that they can go on to make sequels for successful first films.
Arundel has chosen to purchase a portfolio of sequel rights from one or more major studios. This is probably because Arundel does not possess the necessary knowledge in determining which movie will turn out to be successful and have potential for sequels. Without this knowledge, Arundel has to diversify and purchase a whole portfolio of sequel rights from the different studios in order to guarantee the rights to any future