Pricing and Payments
Obviously, the most directly foreseeable issue that would need to be discussed with the individual studios would be what price Arundel Partners is going to pay for the portfolio of sequel rights. Because of the pricings that came from the Black-Sholes model, a negotiation price around $2 million per film would be the range that the negotiations would have to reside in, in order to be a profitable venture to buy each portfolio from each respective studio. If the managers of Arundel Partners involved in the pricing negotiations cannot adhere to close to the $2 million per film price range, then a deal should not be made, and the agreement should be abandoned. Another problem within these negotiations would have to be a detailed method of payment. In the interest of both parties, it would be advantageous to establish an escrow account for each individual studio that Arundel Partners would make payments into, and the studios would be able to make withdrawals out of at whichever times they required the cash in order to properly finance their film production and distribution. For this to work, each individual studio would need to provide rough estimates of when they will need what amount of money so that a minimum account balance would be established. This minimum would vary by studio and by their production schedules and when the studios have more films being produced and distributed based on their respective business strategies for their films. This is advantageous for the studios because they are guaranteeing the availability of the funds, without having to incur expensive financing charges by taking out a loan. This payment method would also be advantageous for Arundel Partners because even though the price per film would be in the range of $2 million, they would not necessarily need to pay everything up front, and may be able to take advantage of other opportunities since they will have the cash flows spread out to a certain extent. This creates value for Arundel Partners through the time value of money and the liquidity of their assets. Once again, the exact terms would vary by studio and by the timing of their ventures. If The Walt Disney Company has large expenditures near the end of the year, the escrow account could be built up over a few months beforehand so that the minimum balance wouldn’t occur until later even though Arundel would potentially be making steady payments. This approach mitigates some of the risk associated with the unreliability of cash expenditures throughout the entire filmmaking and distribution process.
Another key factor for the profitability of the portfolio of sequel rights purchasing is that neither side, whether it be a studio or Arundel Partners, should have knowledge of exactly which films are going to be produced at exactly which times, or have any knowledge of how the success of the films is reasonably expected to be. If either side had knowledge, opinions, or any other information about the potential success or failures of a film then they would have a distinct advantage in negotiations and would be able to sway the deal in either direction. Arundel Partners would not want to be negotiating for the purchase of sequel rights for a film that it knew less about than the studio. Clearly, studios will have the first knowledge of which films will be produced and once production begins, they will have first access to information regarding the progress of the film, and the potential success down the road. The agreements must be made between each studio and Arundel Partners before knowledge is acquired in order to maintain a fair deal. The entire point of purchasing a portfolio of sequel rights is that Arundel Partners is buying rights to films that will be unsuccessful and will not substantiate a profitable sequel, but is also buying...