The 20th Anniversary of Arundel Partners

Arundel Partners: The Sequel Project is an influential Harvard Business School case study published in 1992.  Arundel is widely used to teach the concept of "real options" in business decisions and how to assign a monetary value to them.  Related to a financial call option, a real option provides the right, but not an obligation, to take certain business actions, such as expanding, abandoning, or deferring a project.

Arundel was written by Timothy Luehrman, a Harvard Business School professor, and William A. Teichner, a Charles M. Williams Fellow at Harvard Business School.  

Nobel Prize winner in economics Robert C. Merton, a professor at Massachusetts Institute of Technology, discussed the essential points of Arundel in his Nobel Prize lecture in 1997.  Link to Merton Nobel Prize Lecture (page 107)  Arundel involves a group of investors that is considering acquiring the sequel rights to a portfolio of yet-to-be released feature films. In particular, the investors must determine the value of the sequel rights before any of the first films are produced. Here, the investors face two main choices. They can produce an original movie and sequel at the same time or they can wait to decide on a sequel after the original film is released. The second approach, Merton states, provides the option not to make a sequel in the event the original movie is not successful. This real option has economic worth and can be valued monetarily using an option-pricing model (such as the Black-Scholes model), according to Merton.

Arundel, which may have been the first business school case study to deal with real options, has been included in Harvard Business School's Premier Case Collection, a set of what the school considers its best case studies. Cases in this collection have either been bestsellers or have been chosen for inclusion by HBS faculty.  Link to Arundel Partners at Harvard Business School Publishing   Arundel was also deemed a "Prize Winning" case by the European Case Clearing House.   

In addition to Harvard, Arundel has been taught at numerous business schools, including Wharton, Stanford, Columbia, MIT, Northwestern, NYU, University of Southern California, UCLA, Berkeley, and University of Texas.  Arundel has been used at universities outside the U.S. and has been translated into Spanish and Chinese.  Over the past twenty years, the case study has been taught to thousands of MBA students. It has been cited in business-related books, financial textbooks, journal articles and used by executives at major movie studios.

The number of movies made with sequels increased after the publication of Arundel. Movie studios had long recognized there was value in producing movies with potential sequels: Arundel now helped executives quantify the benefits.   

The case itself discusses the economics of the movie business, focusing on film production, distribution and exhibition.  It examines the economics of movie sequels and contains estimates for revenues along with production and distribution expenses for each film released in the United States during 1989 by the major studios.

Timothy Luehrman, earned his Ph.D. in business economics from Harvard.  Mr. Luehrman and William Teichner both received MBA degrees from Harvard Business School.