B40.3125.10 Wednesday 7:30 - 8:50

Corporate Finance in EMT Firms

Finance in the Music Industry: An Inside Look

Fall 2000

David Ellner, Adjunct Associate Professor of Finance, CFO Universal Records

Jarl Kallberg, Associate Professor of Finance, 9-96 MEC; 212-998-0339;

Course Overview

The focus of this course is finance within the music and, to a somewhat lesser extent, the film industry. Specifically, we emphasize the characteristics of deals, cash flows and valuation within this highly dynamic and uncertain environment. While the core of the material is finance, the issues encompass accounting, marketing and strategy. The course will have three major components:

David Ellner will offer his insider’s view into the music industry

A group of industry experts will discuss investing and decision making in the film industry

A series of cases and the project will apply course concepts.

Since we will be emphasizing problems in corporate finance rather than introducing the central issues, an MBA-level corporate finance course is a pre- or co-requisite.

Requirements

Final grades will be based on three aspects of student participation:

Class participation: Since we would like to make the class as interactive as possible, a high level of class participation will be expected. By Sept. 13, each student is required to submit a sheet (attached) describing his or her work experience and specific interests relevant to this course. In addition, a small photo must be attached so that we can match names to faces as soon as possible. Finally, students are expected to bring their name plates (or reasonable facsimile) to class each night.

Cases: There will be two cases analyzed in detail. The first, Arundel partners, deals, i.a., with real options in the film industry; this case is due on October 4. The second, Polygram Classics, analyzes growth and acquisitions in the recording industry. This case is due on November 14. The other two cases in the case book will be discussed as time permits.

Project: A large portion of the course grade will be allocated to the two segments of the class project. Based on real data, the student will be asked to determine a strategy for negotiating a record deal. The first part of the project deals with the basic financial parameters of the deal; this part is due on October 25. The second part expands on this and takes a broad viewpoint on making the deal work for both the artist and the company. The second part of the project is due on the last class date, December 6.

Students are allowed to work in groups of up to three for the cases and project. The final grade will be allocated according to the following formula:
Class participation20%
Student information form 5%
Cases 30%
Project part I10%
Project part II35%

The expected grade distribution will correspond with finance department guidelines for advanced electives, viz.,
As20 - 35%
Bs35 - 60%
Cs (and lower)5 - 25%

Textbooks

H. Vogel, Entertainment Industry Economics, 1988, Cambridge University Press.

Case booklet (available from bookstore)

Course Outline

Session / Date / Topic / Description
1 / Sept. 6 / Introduction & overview / Course structure & requirements
Overview of the entertainment industry
2 / Sept. 13 / Contracting and deal structure / Student information sheet due
P & D
Royalty deal
Profit participation
Joint ventures
3 / Sept. 20 / Project selection & real options / Selecting projects with embedded options
Introduction to Case I: Arundel
4 / Sept. 27 / Guest speaker / Financing & production of independent movies
5 / Oct. 4 / Economics of the music industry / Per unit P&L
Aggregate P&L
Arundel case due
6 / Oct. 11 / Renegotiation & buyout I / Review a royalty deal
Acquisition of a film or record catalog
Introduction to Project part I
Discussion of Arundel case
7 / Oct. 18 / Renegotiation & buyout II / Continuation of previous session
8 / Oct. 25 / Technology and entertainment I / Project Part I due
Introduction to Polygram case
9 / Nov. 1 / Guest speaker / Movies and new media
10 / Nov. 8 / Technology and entertainment II / Continuation of session 8
11 / Nov. 15 / Guest speaker / Investor relations in EMT firm
Polygram case due
Nov. 22 / Thanksgiving / No class
12 / Nov. 29 / Growth & how to achieve it / Configuration shifts
Loss of distribution stronghold
Discussion of Polygram case
13 / Dec. 6 / CFOs and corporate organization / Corporate CFO
Divisional CFO
Project Part II due

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