Stetson University AMC Networks Inc Finance Calculations Questions AMC Networks, Inc.: “The Walking Dead” Problem Assignment There is no Blackboard discus

Stetson University AMC Networks Inc Finance Calculations Questions AMC Networks, Inc.: “The Walking Dead” Problem Assignment

There is no Blackboard discussion of this case. The only thing that you will do with this case is turn in (individual) the assignment described below.

The assignment asks you to calculate the financial amount that is at stake in the case. Both sides – AMC Networks and the talent behind “The Walking Dead” — are fighting for a share of the profits created by the show. The question is: how much is at stake here?

You are required to submit your calculations.

Details

Use the following assumptions for this assignment:

The cost of producing an episode of the show is $2 million for seasons 1-5 and $2.20 million for seasons 6-10.

Profit participation payout is 15% of episode fee (total for all players)

AMCN can sell $2 million of commercials in each of seasons 1-4; $2.25 million in season 5, $2.50 million in season 6, $2.75 million in season 7, $3.00 million in season 8, $3.25 million in season 9, and $3.50 million in season 10.

Each season has 10 episodes

Syndication rights are sold at $2 million an episode for either show.

The assignment: What would be the profit to (a) AMC Networks, and (b) to the profit participants (the creative talent) if AMC Networks “buys” The Walking Dead from AMC Studios at a reimbursement rate of 85% of episode fee for seasons 1-4, 100% in season 5, and 120% in seasons 6-10?

To help you with the calculations, see the following example:

Example scenario: AMCN buys The Walking Dead from AMC Studios at a reimbursement rate of 68% of episode fee from season 1 through season 10 (rate indicated in lawsuit)

Revenue accounting by AMCN

Season

Cost/episode (in $ m)

Revenue/episode (in $ m)

Profit/season (in $ m)

1

1.36 (68% of $2 m)

2.00

0.640 * 10 = 6.40

2

1.36

2.00

0.640 * 10 = 6.40

3

1.36

2.00

0.640 * 10 = 6.40

4

1.36

2.00

0.640 * 10 = 6.40

5

1.36

2.25

0.890 * 10 = 8.90

6

1.50* (68% of $2.2 m)

2.50

1.000 * 10 = 10.00

7

1.50

2.75

1.250 * 10 = 12.50

8

1.50

3.00

1.500 * 10 = 15.00

9

1.50

3.25

1.750 * 10 = 17.50

10

1.50

3.50

2.000 * 10 = 20.00/ Total is 109.50 million

*rounded off from $1.496 million

Example scenario (contd.): Accounting of costs for The Walking Dead by AMC Studios

Season

Net Reimbursement (in $ m)

Cost (in $ m)

Deficit/Season (in $ m)

1

1.156 (85% of 1.36)

2.00

0.844 *10 = 8.44

2

1.156

2.00

0.844 *10 = 8.44

3

1.156

2.00

0.844 *10 = 8.44

4

1.156

2.00

0.844 *10 = 8.44

5

1.156

2.00

0.844 *10 = 8.44

6

1.275 (85% of 1.50)

2.20

0.925 *10 = 9.25

7

1.275

2.20

0.925 *10 = 9.25

8

1.275

2.20

0.925 *10 = 9.25

9

1.275

2.20

0.925 *10 = 9.25

10

1.275

2.20

0.925 * 10 = 9.25/ Total = 88.45 million

Net to AMCN  $109.50 – $88.45 = $21.05 million

Overall profits to AMCN = $21.05 million + $170 million ($200 m in syndication – 15% profit participation)  $191.05 million

Profit payout to participants: $21.45 million +$30 million (from syndication)  $51.45

Use the above example to calculate the overall profits to AMCN and to the creative talent based on the assignment question on the previous page. The deliverable are tables like in my example.