Negotiating & Contracting
the Acquisition of Privately Held Intellectual Properties

Part Six
By Harlington L. Hanna Jr.

Opportunity Cost - Limited Resources Protection & Exploitation -
Same Resource Same Profit Principle, Different Product Same Profit Principle

The entertainment entrepreneur must be careful to expend his resources with an understanding of the economic principle of opportunity cost in mind. Indeed the major companies in the entertainment arena practice this principle well. Resources are always limited no matter how large the entity. Therefore with thousands maybe millions of producers in the marketplace, companies must make a concerted effort in deciding where to spend their money and efforts. After all in business the bottom line is profit. If ten dollars spent must result in twenty dollars profit at the end of the day to keep thew business viable, then it becomes incumbent upon management to spend that ten dollars in a manner to maximize the chance to make the necessary twenty dollars. If management perceives that there may be many products which it can acquire in a buyers market which can bring them the twenty dollars, management will move between these products until it finds one that it can maximize its potential with. This is where the entertainment producer often fails to understand the entertainment businessman. The experienced businessperson is usually not emotionally attached to the beauty and artistic features of the production on the front end. He becomes attached to it if he ever does only on the back end once he has chosen and it from the legions offered him in this buyers market, and after he is committed to it financially. Then he sounds and hypes it like it is the greatest thing he has ever seen.

In negotiating acquisitions this factor is extremely important because for every property you acquire there is some property you must forgo. O it is incumbent upon the acquirer to ensure that he picks a product that will bring him the same profit for the expenditures.

The fact is however the true entertainment businessman sees a tremendous amount of potentially successful products but no matter how deep his pockets are he can only utilize so much of them. Beyond that his acquisitions serve to keep competition out of the marketplace either intentionally or unintentionally. He is able to do this because he is a buyer operating in a buyer's marketplace.

These scenarios are important for the sellers to recognize. Sellers of productions should understand that in a buyers market they must do several things;

1. Attempt to make their production as unique as possible to standout from the competition
2. Market their production to as many potential users at the same time as possible
3. Be reasonable in their expectations of the deal they are looking for.
4. Be prepared to allow the exploiting company to make a good profit in the deal.
5. Don't forgo other important aspects of a deal for upfront money.
6. Don't allow your production to get tied up or sit on the shelf because of over aggressive negotiations. Remember one of the things large companies may do is tie up your product to get it off the competitive marketplace.
7. Be prepared to a cooperative and hard working partner in the collaborative process necessary for success
8. Don't forget that your deal with a smaller outfit tied to a larger company may be better that being tied directly to the large company. (The small affiliated company may have what it takes to move the big company to do things you cannot get them to do and meanwhile allow you to maintain more control of your career possibilities.
9. Become a part of an effective network from within which they can work. This may provide the most important tool and aspect to your business success.

Emotionalism

The entertainment entrepreneur must be careful to leave emotionalism out of the formula in conducting business operations. He or she must remember that in the buyers marketplace there is always more production available to the wise property acquirer. Due to the inherent nature of the entertainment business and the natural affinity individuals have for beautiful artistic creations. It is easy to become emotionally involved with a production. This makes it difficult to walk away when indeed the business aspects of it demands you do so. In a buyer's marketplace where there are potentially successful products around every corner, the principles of opportunity cost, same resource same profit, and different product same profit should always apply to the business decision. While the beauty of a song or book may be compelling, it is only so in a business sense if your dollars spent cannot produce the same return some where else. Fortunately for the entrepreneur in a buyer's marketplace there are always other projects just waiting for their chance to make you the same amount of profit for the resources expended. Emotionalism can therefore be a very destructive factor to ultimate success in entertainment. The wise entertainment entrepreneur must learn to walk away easily and unemotionally. Although the entertainment business is potentially extremely lucrative, it can also be one of the quickest ways to bankruptcy court. Usually it is this inherent emotionalism that leads the way down the wrong financial path.

 

  Part Five ----- Part Seven


For Further details of the Hannaian Business network and its associated business opportunities visit the Business Opportunities Section of the Hannaian Publishing Website at
http://www.hannaian.com/distribr.htm