Why do the principals of Arundel Partners think they can make money buying movie sequel rights?
The principals of Arundel Partners think they can make money buying movie sequel rights because they will be better placed to predict the success or failure of movies to their benefit. They will achieve this by exercising the power of the film in case of a movie success, or they sell the film to another bidder in case of movie failure. By doing this, the chance of losing money in case of defective sequels is limited, and the Partners will achieve profit maximization and increase the profits gains adequately thus making money.
Besides, the principals of Arundel Partners think they can make money buying movie sequel rights because the partners will be able to give the movie enough time before they buy the second time not plunging into loses. This way the Arundel Partners would study the film and design the best market strategy that will gunner considerable amounts. In case the first film doesn’t make through in the market Arundel Partners will not produce the second film thus reducing the risk of losses. The idea is more less the same as that of call options as the only amounts a company can lose is the initial outlay capital so long as the future prediction on the sequel is made accurately.
In addition, Arundel Partners purchase of bulk rights enables them to negotiate the other rights at lower costs per movie thus saving and making money at the same time. Bulk purchases entice price discounts, and the principals of Arundel Partners would make money buying movie sequel rights. Furthermore, Arundel Partners research concerning first films and understanding of sequels would enable them to make critical analysis and come up with a formidable solution and right business timing on the sale of movies. The research presents a window for the principals to analyze the costs and revenues in regards to sequel rights. This way the Arundel Partners will calculate the net present value of the project and decide whether it make profits or loses. The principals of Arundel Partners would choose whether to accept or reject the plan.
Why do the partners want to buy a portfolio of rights in advance rather than negotiating film-by-film to buy them?
It is of salient significance to Arundel that the quantity (number of films) and price (cost) for each film is discussed and decided upon before Arundel Partners or the studio filming fathoms the kind of movie and the type of sequel to be generated. In addition, after the commencement of production, the studio is inevitable to come up with the idea concerning the movie and the possibility a sequel right would be possible. This in itself would disadvantage Arundel Partners, because they will have to discuss and arrived at the price per sequel right on every film generated while having little or no information about the film, unlike the production studio. Buying the portfolio in advance rather than negotiating film by film mean the principals would derive some value unlike buying the entire films. Price and cost of the film is all what matters and its worth to secure the rights first so that no one can manipulate the entire product once Arundel Partners have acquired the films.
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