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Unformatted text preview: ight – price they paid for the right” : loss will be deductible from tax. Arundel expects that gains from successful sequels will offset the losses When does Arundel buy the rights? When does Arundel buy the rights? The sequel rights are purchased before production of first movie:
Purchase sequel rights for entire production of studio • Unknown which movies are going to be produced at the • moment Arundel purchases sequel rights. Price and number of movies should be agreed before • either parties know which films are going to be produced. Arundel don’t want to pay prices which reflects the • opinion of the studio about the movie Arundel pays the agreed price to an escrow account as • soon the movie goes into production How much are the sequel rights worth in 1989? How much are the sequel rights worth in 1989? Assumptions • • • of • • 1989) We assume that the company buys sequel rights for the full sample portfolio (exhibit 6, a sample of 99 films) The option is exercised when present...
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- Fall '13