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Essay / Arundel Partners Case Analysis - 1495
Arundel Partners Case AnalysisSummary: A group of investors (Arundel group) is studying the idea of purchasing the sequel rights associated with films produced by one or more major film studios . Film rights must be purchased before films are made. Arundel wants to make the decision to either purchase all sequel rights for a studio's entire output for a specified period of time, or to purchase a specified number of major films. Arundel's profitability depends on the price it pays for a portfolio of consecutive rights. Our analysis of Arundel's proposal includes a calculation of the net present value of each film production company. In order to decide whether Arundel can make money by purchasing the rights to a film's sequels, it depends on whether the production company's net present value of the films is greater than the estimated 2 million per film required to purchase the rights. Problem Identification: How do Arundel Partners executives plan to make money by buying the rights to the sequels? They would be interested in purchasing sequel rights for one or more studios... for the entire production over an extended period of at least one year. If a particular film was a success and Arundel thought a sequel would be profitable, he would exercise his rights by producing the sequel. Alternatively, they can sell the rights to the highest bidder. Inevitably, the performance of the original films would not warrant sequels, and for them, the rights to the sequels simply would not be exercised. For most films, it becomes clear after their first few weeks of theatrical release whether a sequel would be economical or not, based on each film's box office performance. Why do partners want to buy a portfolio of...... middle of paper ......posed for purchase. As shown in the illustration of solution 2, we estimated the value per film of each production company. MCA Universal, Warner Brothers and Walt Disney Co are the only production companies to provide a positive value per film, with values of 9.89, 1.92 and 12.56 million, respectively. This value is calculated by dividing the net present value of all films by the total number of films. We also calculated the average value of each production company based on its share of the total number of films produced. Companies with positive values were MCA Universal, Warner Brothers and Walt Disney Co. They are also the only production companies to provide positive value per film, with values of 1.40, 0.37 and 1.40 million respectively. . These values are based on the average value per film multiplied by the company's average industry share..