The proposal was innovative but at the same time, very risky. According to the case report, ‘Arundel would purchase the sequel rights before the first film were even made. Furthermore, the investor group would not make artistic judgments or attempt to select the rights for particular movies based on predictions of possible sequel’s successes’. On top of that, Arundel would also advance cash payments for the rights to finance the production of the initial film.
This proposal was risky because tastes and preferences of public will change dramatically as time goes. Thus to maintain and predicting the success of any one film or its sequel could be the biggest challenge of this business. At the same time, the amount of investment for each film was averaged at 2 million. This could also bring this project to a negative return easily if the net return falls below the initial cost.
In 1991, the industry produced 427 films in total. While major studios distributed 35% or 150 of all the films released, they accounted for 93% of all revenues received. One good example would be the top U.S. rental film of 1991, Tri-stars Terminator 2, represented approximately 5% of total U.S. industry rentals. Leader in market share in terms of rental amount changed year to year. This is due to the extreme volatility of public taste and preference. Table below presented the U.S. firm distributors data from 1980 – 1991.
According to the report, a typical movie went through three stages before it reaches the public. These three stages were production, distribution, and exhibition.
Production involved creating the film’s total...