Answer on Arundel Partner Case

Topics: Film, Sequel, Monte Carlo Pages: 2 (293 words) Published: March 16, 2011
Arundel Partners: The Sequel Project

Case Talking points
Submitted by: Marc Brands, Hajime Tamachi, Rani Vainateya, Nobuyasu Sugimoto, Kunihiro Takahashi, Yasuhisa Tsurumi

Our group performed a Monte Carlo simulation (attached spreadsheet). We have taken into consideration the data of all studios provided in Exhibit 7. We have assumed that the sequel production and success of the sequel is spread evenly across all the studios. We assume that the past data reflects the future probabilities of sequel production and success of movies. We are making an important assumption that the studio will have retained interest in producing a sequel after Arundel Partners have bought the rights.

• Value of movie rights - $9.67 million
• We recommend purchasing the movie rights for $2 million • We can spend a maximum of $9.67 million

Arundel is interested in this opportunity because

• A sequel movie following a successful film was a big business. Obtaining rights to them was lucrative. Once the rights were obtained they could either sell to the highest bidder or exercise the right by producing and distributing the sequel themselves. • This project capitalizes on specific characteristics of the movie industry- difficulty in predicting success and the risk associated with producing and distributing movies • It is attractive to the studio because the total payments made towards purchasing rights of sequels could help reduce the studio’s borrowing.

Concerns about the structure of the contract

• Satisfactory method of payment.
• Designing the contract to retain interest and keep the studio committed to success of possible sequels is most important. We recommend that there is some profit sharing arrangement between the studio and Arundel partners for this. • Design a contract to provide Arundel to use original studio for distribution (if these expenses were competitive in the first place).
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