Precision

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15.963 Management Accounting and Control
Spring 2007

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15.963 Managerial Accounting and Control
Spring 2007

Prof. Mozaffar Khan

MIT Sloan School of Management

Main Line vs. Basinger

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SelectedFilmography
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Kim Basinger
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Sherilyn Fenn
Novel Romance (2006) Dream Warrior (2004) Darkness Falls (1999) Outside Ozona (1998) Boxing Helena (1993) Backstreet Dreams (1990) The Wild Life (1984)
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The Sentinel (2006) Cellular (2004) 8 Mile (2002) L.A. Confidential (1997) The Getaway (1994) Batman (1989) Hard Country (1981)

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Managerial Accounting & ControlMain Line vs. Basinger

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Evaluate the defense argument that Mazzocone “has a duty under the law to minimize his loss, and this does not include going out and making a picture knowing you are $2m short.
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At what stage in the negotiations did Basinger withdraw?
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If late, it is possible some costs were contractual obligations (such as rights to script) at the time, and theseobligations were assumed with the presumption of Basinger participating.
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Main Line vs. Basinger

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What were Mazzocone’s options following Basinger’s withdrawal?
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Do not make movie – this assumes all costs sunk. Make with another actress – this assumes some cost recoverability.

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How does this relate to examplein previous class about airline pricing? Evaluate the following claim: “at the time of Basinger’s withdrawal, Mazzocone was faced with a short run decision.” Does loss minimization imply not making the movie, as suggested by the defense?
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Main Line vs. Basinger

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Evaluate the net profit differential idea used by the plaintiff’sattorney.
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Idea is that even if movie with Fenn does better than expected, movie with Basinger would have done proportionately better. How movie with Fenn will do will become observable at some point.
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Assume waiting is costless. Why can Main Line not wait to sue Basinger till this uncertainty is resolved?
This should reduce estimation errors.

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Suppose movie with Fenn ends up making $10m profit for Main Line, and at this time studio sues Basinger. Evaluate the strength of their case. Now what do you think of the profit differential idea?
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Basinger’s attorney probably should have stalled for time.

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How are the “net profit” in tables 1 and 2, and the “grossprofit” in table 3, related?
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They are essentially the same: revenues to producer, minus production costs. So plaintiff’s expert actually seems to be using conservative revenue figures.
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Main Line vs. Basinger

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Is the comparison of revenues for other Basinger vs. Fenn films relevant?
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It allows an assessment ofrevenues with and without. Be careful to only include movies in which both were leads. Revenue attribution much less reliable for movies in which they play supporting roles. „ E.g., plaintiff’s expert did not exclude Never Say Never Again and The Natural, in which Basinger had supporting roles.

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Main Line vs. Basinger

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Is the$1.7m advance by a Main Line partner against domestic sales relevant?
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Suggests that domestic sales were not expected to be zero for Fenn, as assumed in Plaintiff expert’s testimony. What is a reasonable amount to include as domestic sales for Fenn? Probably one-to-one with foreign pre-sales.
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