Arundel Partners Investment Analysis
EXECUTIVE SUMMARY
Background
The proposed business venture, Arundel Partners, is an investment group which would purchase the sequels rights associated with all films produced by 1 or more selected U.S. movie production studios for a specified period of time, or a specified number of films. As your investment analysts, our goal is to assess the value of the sequel rights to allow a determination of the value of the overall investment as well as a reasonable price-per-film for the sequel rights.
Arundel Partners plans to pay to obtain a guarantee to the ownership of sequel rights for a set of films prior to production. It is assumed that only a small percentage of the films produced by a studio will be sequel candidates, based on the profitability of the initial film release. It is also recognized that the profitability of a sequel is typically lower than the initial release. This estimated profit will determine the proposed contract offer by Arundel Partners to the selected studio.
Sequence of Events
**Note: The diagram in Figure 1.1 outlines the timeline as it applies to the Arundel investment described.
Prior to proposal, Arundel will need to determine which studio they feel offers the best potential success, and propose the contract prior to knowledge of films to be produced during the contract period. Arundel will then own the sequels rights as defined in the contract. History suggests that a studio would entertain an offer around $2 million per film for the rights to the sequels of each move it produces that year.
FIGURE 1: SUM...
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... 3) performance rights; 4) public display rights; and, 5) the right to prepare derivative works. It is important that Arundel understand how this may impact long term profitability of their investment, and any criteria required as part of the transaction should be incorporated into the proposal contract.
Major studios might place restrictions on transfer of copyright ownership on highly profitable movies. Arundel partners should insist on a contract where by purchasing the sequel rights transfers the copyright as well. Such a clause included in the contract would protect the rights of Arundel from being diminished or impaired and avoid litigation over the literary property.
By optioning to acquire the sequel rights, Arundel Partners should be free to transfer the rights to third party to make a profitable deal and such clause should be included in the contract.
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How are the principals of Arundel Partners planning to make money by buying rights to sequels? They would be interested in purchasing the sequel rights for one or more studios¡¦ entire production over an extended period of not less than a year. If a particular film was a hit, and Arundel thought a sequel would be profitable, it would exercise its rights by producing the sequel. Alternatively, they can sell the rights to the highest bidder. Inevitably, the performance of the original films would not justify sequels, and for them the sequel rights would simply not be exercised. For most movies it becomes quite clear after their first few weeks in theaters whether a sequel would be economical or not, based upon each film's box office performance.
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Intellectual property is an incredibly complicated facet of the law. In the United States, we have many laws in place to control and limit profiting from others intellectual property. The issue is not only profiting from others intellectual property, but not purchasing the property from the originator as well. We will discuss why it is important to protect this property as well as why it is tremendously difficult to regulate all these safe guards. “Intellectual Property has the shelf life of a banana.” Bill Gates
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the film, to create a re-make that is worth going to see. The use of
amounts of equity (Disney and Government) as well as with subordinated debt (Government), Disney had
My previous two columns have focused on the story of my short-lived involvement with a group of investors seeking to purchase Marvel Comics in January, 1998. As I related last time, my role in examining the Marvel documents was to analyze the licensing division with an eye as to how much potential revenue we could anticipate from this area. In the end, I had to tell my fellow investors that there really wasn't a whole lot of licensing potential left. Either the rights were hopelessly entangled due to bungling on the part of Marvel's legal staff, or that most of the decent licensing properties had already been sold for many years forward, in exchange for upfront cash payments in previous years.
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