Anurag Jain's Blog on Bangalore Events, Travel, IIM Bangalore, IIM, IIMB, Management

Sunday, June 22, 2003

Posted 10:33 AM by Anurag

Sequels: Why produce 'em?

Harry Potter 5, Matrix III, LoTR III. Whats common to all these? Yes, they are all eagerly awaited by fans and non-fans alike. But more importantly, they are all sequels. That brings me to the topic: Why do authors write book sequels, producers produce movie sequels? What makes a sequel click? What if it doesn't click? Would you stop after the flop? Or would the producer remain unfazed, value emotional attachments more, go till the end of the series and make even later sequels? How does one decide? Reminds me of one interesting Real Options case that we did in Advanced Corporate Finance (Prof R. Srini) course. The case was Arundel Partners and the idea was to demonstrate the concept of Real Options (Option pricing in real life situations other than stocks). The case was presented by a hollywood-buff batchmate of mine with great elan and loads of humors implants. What made that more fun was that Prof R. Srinivas also has an amazing sense of humor. That class was a treat, even to a non-fin guy like me! Some of the questions were (from Prof Ernst Maug's [Fuqua School] page):

*Why do the principals of Arundel Partners think they can make money buying movie sequel rights? Why do the partners want to buy a portfolio of rights in advance rather than negotiating film-by-film to buy them?
*Estimate the per-film value of a portfolio of sequel rights such as Arundel proposes to buy. (There are several ways to approach this
problem, all of which require some part of the dataset in Exhibits 6-9. You may find it helpful to consult the Appendix, which explains how these figures were prepared.)
*What are the primary advantages and disadvantages of the approach you took to valuing the rights? What further assistance or data would you require to refine your estimate of the rights’ value?
*What problems or disagreements would you expect Arundel and a major studio to encounter in the course of a relationship like that described in the case? What contractual terms and provisions should Arundel insist on?

And you thought movies/books sequels were all entertainment, uh? So, next time you watch Beverly Hill Cops III or Austin Powers II, III (yuck! I dont think they applied Real Options or any rational method in deciding on this one!), do give a thought as to why they bothered to produce the sequel! :-)

1 comments

Comments:

This comment has been removed by a blog administrator.

# posted by

Anonymous : February 13, 2009 6:53 AM