| |is that? Use the Structure-Conduct-Performance framework and the Five-Forces framework to characterize the |
| |industry. |
| |(2) Will major record companies continue to dominate the business following the advent of the Internet? How |
| |might the structure and economics of the music industry change? At the time of the case, what phase of |
| |industry transformation is the music industry in? If you follow the music industry, what major changes to the |
| |industry have occurred since the time of the case? |
| |(3) Evaluate BMG’s approach to the Internet. Does it make sense? Does it follow Porter’s recommendation in …show more content…
Investment Opportunities as Real Options, HBR [Reprint 98404] |
| | |Text: Chapter 8 (skim) |
| |Assignment Questions |
| |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? |
| |See WebCT for Arundel_Partners.xls spreadsheet to assist in the calculations below. |
| |Value the sequel rights as if they were operating assets. This can be done simply by discounting expected |
| |future cash flows at a discount rate, k: NPV = E[Cash Flow]/(1+k)^n, where Cash Flow = (net inflows - negative|
| |costs) and n=the number of periods for discounting. Use the average PV of Net Inflows and the average PV of |
| |Negative Costs from Exhibit 7 for the hypothetical sequels. Note that they are reported at different years so