Arundel Partners Essay
This case report discussed the financial and business situation of an investment group, Arundel Partners. Arundel partners focused its investments on the sequel rights of that ‘associated with firms produced by one or more major U.S. movie studios’. As owner of the rights, Arundel could continue or reject the production of sequel.
Business
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. …show more content…
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.
Industry
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 cost and its cost incurred in three primary stages, pre-production, principal photography, and post-production. On average, the entire production cycle was about one year from the starting of the film until its finish. In 1991, the averaged film cost of production was approximately 20 million.
Distribution consisted of advertising, shipping prints to theaters, onto videocassettes, and licensing it to television program. Studios that produced or financed the movies usually were the distributor as well. Beside all the advertising responsibility, they also in charge of collecting proceed from theaters and ancillary revenue sources.
Exhibition consisted of showing films in theater and other viewing media, such as home video. U.S. film released its production first in local movie theaters, and then followed by non U.S. theaters after two to three months.
In 1991, 50% of each dollar of gross proceeds in movie theaters accounted as film rental for distributor.
Opportunity & Threats
According to the case report, there are more than 60 films produced one or more sequels from 1970 to 1991. One good example would be James Bond film series, which begun in 1962 and produced 16 sequels.
Generally, sequels were illustrated and expanded based on initial movies’ characters or situations. Scripts usually continued written by enthusiast or the creator of the story. The mean release date for a sequel was three years which mean it could cause decrease in interest of the public.
The production cost of sequel was about 120% of the first film’s production cost. If the production cost of the initial film was 2 million on average, its sequels would need at least 2.4 million and above. This increased in production amount could be a big obstacle for the film as it was inevitable.
In conclusion, the project was innovative and profitable in general. However, the obstacles that accompanied with increased the riskiness of this project. Proper and detailed financial budgeting was at crucial level.
There were few reasons for Arundel partners to buy a portfolio of rights in advance rather than negotiating film by film. First of all, by purchasing in bulk, they might be able to negotiate to a lower price. Furthermore, Arundel planned to purchase the sequel before the film was made. This strategy could omit the unnecessary bargain over individual projects as studio would gradually form an opinion about the movie, either good or bad. Last but not least, purchasing in portfolio would certainly reduce the cost of making contracts with each studios compared to negotiating individual production.
Business
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. …show more content…
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.
Industry
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 cost and its cost incurred in three primary stages, pre-production, principal photography, and post-production. On average, the entire production cycle was about one year from the starting of the film until its finish. In 1991, the averaged film cost of production was approximately 20 million.
Distribution consisted of advertising, shipping prints to theaters, onto videocassettes, and licensing it to television program. Studios that produced or financed the movies usually were the distributor as well. Beside all the advertising responsibility, they also in charge of collecting proceed from theaters and ancillary revenue sources.
Exhibition consisted of showing films in theater and other viewing media, such as home video. U.S. film released its production first in local movie theaters, and then followed by non U.S. theaters after two to three months.
In 1991, 50% of each dollar of gross proceeds in movie theaters accounted as film rental for distributor.
Opportunity & Threats
According to the case report, there are more than 60 films produced one or more sequels from 1970 to 1991. One good example would be James Bond film series, which begun in 1962 and produced 16 sequels.
Generally, sequels were illustrated and expanded based on initial movies’ characters or situations. Scripts usually continued written by enthusiast or the creator of the story. The mean release date for a sequel was three years which mean it could cause decrease in interest of the public.
The production cost of sequel was about 120% of the first film’s production cost. If the production cost of the initial film was 2 million on average, its sequels would need at least 2.4 million and above. This increased in production amount could be a big obstacle for the film as it was inevitable.
In conclusion, the project was innovative and profitable in general. However, the obstacles that accompanied with increased the riskiness of this project. Proper and detailed financial budgeting was at crucial level.
There were few reasons for Arundel partners to buy a portfolio of rights in advance rather than negotiating film by film. First of all, by purchasing in bulk, they might be able to negotiate to a lower price. Furthermore, Arundel planned to purchase the sequel before the film was made. This strategy could omit the unnecessary bargain over individual projects as studio would gradually form an opinion about the movie, either good or bad. Last but not least, purchasing in portfolio would certainly reduce the cost of making contracts with each studios compared to negotiating individual production.