Why This is an Attractive Project
The Arundel Partners' believe that they can make money on this project as it allows them to capitalize on the idiosyncratic risk of the motion picture business. Producing and distributing motion picture films is a risky business due to the uncertainty of moviegoers' tastes and a studio never knows if they have a blockbuster on their hands until after the movie has started production or even later after it has been released. The financial resources of even the largest studios often become strained. Arundel's value proposition, to purchase the rights to movie sequels in a sequence of payments during the producing of the first movie, is to provide funds to the movie studios when they most need it. Arundel benefits from this arrangement as the greatest risk is taken by the movie studios when they produce the original film. Almost all sequels follow successful films and in the last 10-20 years it has become common for successful films to spawn one or more sequels.
Arundel
English: This image plots the Black-Scholes-Merton...Arundel will be able to determine the success of the first movie before they decide if they would like to make the sequel so there is a limited down side as they can always choose not to produce a sequel if the first movie performance is poor. In addition, Arundel also has the option to sell the sequel rights to the highest bidder if they do not want to produce the sequel themselves
Why Purchase Movie Rights in Advance
If Arundel Partners' do not negotiate the rights in advance they will find themselves in a position which requires the sequential resolution of uncertainty, successive negotiations of contracts, and a position where each round of negotiations carries the risk of terminating the relationship. The approach that helps Arundel take care of...