Arundel Partners Case Summary

Proponents of this venture believe that Arundel should be able to make money by buying options to movie sequel rights as a portfolio of rights rather than on a film-by-film basis because they are diversifying their risk by spreading their options across multiple projects rather than a single movie. Arundel avoids trying to forecast how well the movie will do by purchasing the options to a group of movies ahead of time, thus they minimize the risk of moviegoers preferences changing. Past performances of movies are used to predict the average future performance of movies. By spreading the cost of the option across multiple movies they are incorporating the zero-dollar values of the movies that would not be successful for a sequel, thereby reducing the overall per-movie amount they are paying.

Since movies are an expensive business that requires up front capital, Arundel’s offer of providing cash pre-production will be attractive to movie studios, giving Arundel an advantage in contract negotiation. Depending on how well they negotiate their contracts, the amount of successful returns needed to see a return on investment will vary.

Arundel has
As a movie is produced, distributed, and shown in theatres, the movie studio gains more and more knowledge about the movie, which allows them to predict how well the movie will perform financially. This would create an advantage for the movie company if negotiating with Arundel after production began or a movie was released, especially because Arundel would not have most of this information. If Arundel waited to purchase the sequel rights until t=1, they would be spending significantly more on the