CAIA - 21 - Investing in Intellectual Property Flashcards
Film production and distribution generally provides ___-skewed return distributions, with box-office returns depending on film genres.
Film production and distribution generally provides right-skewed return distributions, with box-office returns depending on film genres.
Art provides relatively ___ returns with ___risk and is subject to ___transaction costs.
Art provides relatively low returns with moderate risk and is subject to high transaction costs.
Patents and R&D offer ___ returns, but requires significant ___.
Patents and R&D offer high returns, but requires significant expertise.
___ IP is IP that can be owned, finance, or traded on a stand-alone basis at different development stages.
Unbundled IP is IP that can be owned, finance, or traded on a stand-alone basis at different development stages.
The value of ___or ___ IP is uncertain and may not recover initial costs.
The value of new or exploratory IP is uncertain and may not recover initial costs.
___ intellectual property is developed IP that has an established use with an ability to generate income from licensing or royalties. Its valuation is relatively ___and can incorporate ___ ___.
Mature intellectual property is developed IP that has an established use with an ability to generate income from licensing or royalties. Its valuation is relatively stable and can incorporate risk premiums.
According to Soloveichik, theatrical film is a long-term asset with a lifespan of ___ years that loses ___% of its value in the first year after release and depreciates at ___% per year thereafter. Once available for home purchase, films typically generate revenue in alignment with ______revenues.
According to Soloveichik, theatrical film is a long-term asset with a lifespan of 80 years that loses 50% of its value in the first year after release and depreciates at 5% per year thereafter. Once available for home purchase, films typically generate revenue in alignment with box office revenues.
Economic reasoning and empirical evidence suggests that IP that is primarily a ___ good is unlikely to generate substantial long-term investment returns.
Economic reasoning and empirical evidence suggests that IP that is primarily a consumption good is unlikely to generate substantial long-term investment returns.
Revenues from film production are fairly ___.
Revenues from film production are fairly stable.
There are four film production stages:
- Acquisition of ___ ___
- ___-___
- ___
- ___-___
There are four film production stages:
- Acquisition of story rights
2. Pre-production
3. Production
4. Post-production
___ ___ ___refers to investors funding a set of films and is often provided by a hedge fund or investment bank.
Slate equity financing refers to investors funding a set of films and is often provided by a hedge fund or investment bank.
___ ___refers to a private placement or public offering that funds a production company.
Corporate equity refers to a private placement or public offering that funds a production company.
___-___refers to studios collaborating on a film, splitting equity costs as well as risk and return.
Co-production refers to studios collaborating on a film, splitting equity costs as well as risk and return.
___-___ ___ refers to high net worth individuals, institutional investors, and other third-party investors funding costs not covered by other forms of financing.
Third-party equity refers to high net worth individuals, institutional investors, and other third-party investors funding costs not covered by other forms of financing.
___ ___ ___ is typically used for smaller, independent films.
Third party equity is typically used for smaller, independent films.
When a film distributor agrees to buy the film for a specific price after taking delivery of the completed film, it is called a ___ ___ ___.
When a film distributor agrees to buy the film for a specific price after taking delivery of the completed film, it is called a negative pickup deal.
___ ___ -___ occur before the film is made, distribution rights for specific foreign regions are sold for a fixed price, with most payment due when the film is ___ .
Foreign pre-sales occur before the film is made, distribution rights for specific foreign regions are sold for a fixed price, with most payment due when the film is completed.
___ ___ ___ cover any difference in financing between the production budget and the senior secured debt. These loans are often collateralized by selling distributors rights to unsold territories.
Gap financing loans cover any difference in financing between the production budget and the senior secured debt. These loans are often collateralized by selling distributors rights to unsold territories.
___ ___or ___ ___ financing is a second level of financing that covers the difference between senior loans and first-level ___financing. These loans are often ___.
Super gap or junior debt financing is a second level of financing that covers the difference between senior loans and first-level gap financing. These loans are often syndicated.
Film production costs can also be supplemented with ___ participations.
Film production costs can also be supplemented with royalty participations.
Larger film budgets usually result in ___ revenues and ___profitability.
Larger film budgets usually result in higher revenues and lower profitability.
Most film stars (do/do not) have a positive effect on revenues.
Most film stars do not have a positive effect on revenues.
Movie directors may have a positive effect on ___.
Movie directors may have a positive effect on profitability.
Sequels tend to generate ___ revenue and ___risk.
Sequels tend to generate higher revenue and less risk.
Thrillers and sci-fi tend to generate ___ revenues and romantic films tend to generate ___revenues.
Thrillers and sci-fi tend to generate high revenues and romantic films tend to generate low revenues.
Cash on cash returns of films (equation)
GBOR = global box office revenue; DBOR = Domestic
___ films are the least likely to generate a loss.
Horror films are the least likely to generate a loss.
A number of general reasons exist for considering art as an asset class:
- ___ ___of demand
- Market ___
- Lack of ___
A number of general reasons exist for considering art as an asset class:
- Long history of demand
- Market inefficiency
- Lack of transparency
___ ___ ___synthetically construct a continuous price series by controlling for each transaction’s unique characteristics.
Hedonic price estimators synthetically construct a continuous price series by controlling for each transaction’s unique characteristics.
___-___ ___ calculate returns to works of art with more than one transaction, using pairs of repeated sales to estimate returns.
Repeat-sales estimators calculate returns to works of art with more than one transaction, using pairs of repeated sales to estimate returns.
The median real return to holding art for a long period was found to be ___%. That return was based on ___prices, which are prices paid at auction and don’t include commissions.
The median real return to holding art for a long period was found to be 2.2%. That return was based on hammer prices, which are prices paid at auction and don’t include commissions.
The ___ ___maintains that returns to extremely expensive art work differ significantly from returns for the general art market.
The masterpiece effect maintains that returns to extremely expensive art work differ significantly from returns for the general art market.
Of six studies reviewed, ___ found a positive masterpiece effect.
Of six studies reviewed, one found a positive masterpiece effect.
The ___ of ___ ___ states that the price of similar assets in different markets should be priced the same or similarly.
The law of one price states that the price of similar assets in different markets should be priced the same or similarly.
Studies revealed mixed and weak evidence that the law of one price (does/does not) hold.
Studies revealed mixed and weak evidence that the law of one price does not hold.
A currency effect (is/is not) found to be a significant driver of returns of art.
A currency effect is not found to be a significant driver of returns of art.
A ___ ___ is observed with higher quality paintings generating higher returns.
A quality effect is observed with higher quality paintings generating higher returns.
Even with low returns, investors still acquire art for an ___ ___or for ___.
Even with low returns, investors still acquire art for an inflation hedge or for aesthetics.
Evidence indicates that returns to other collectibles (are/are not) low.
Evidence indicates that returns to other collectibles are low.
Private investor returns on R&D are ___ and are ___ than other capital investments.
Private investor returns on R&D are positive and are greater than other capital investments.
Social returns on R&D are ___ than private returns.
Social returns on R&D are greater than private returns.
Patents typically have ___ ex-post value.
Patents typically have little ex-post value.
There are 5 key strategies for acquiring and monetizing patent related intellectual property:
- ___ and ___
- ___and ___
- Sale ___-___strategy
- ___strategies
- ___and ___
There are 5 key strategies for acquiring and monetizing patent related intellectual property:
- Acquisition and licensing
- Enforcement and litigation
- Sale license-back strategy
- Lending strategies
- Sales and Pooling
A ___ ___provision enables the licensor to terminate the license or make the license non-exclusive if royalties do not reach a contracted amount within a given period.
A minimum royalty provision enables the licensor to terminate the license or make the license non-exclusive if royalties do not reach a contracted amount within a given period.
A ___ of ___provision enables the licensor to grant an exclusive license for a geographical region or particular market.
A field of use provision enables the licensor to grant an exclusive license for a geographical region or particular market.
A ___ of ___provision gives the licensor the right to use the patent, generally for non-commercial research uses.
A reservation of rights provision gives the licensor the right to use the patent, generally for non-commercial research uses.
An ___ provision addresses making improvements to the patent, which may infringe on the patent claims. This is a challenging part of license negotiations since the licensor or the licensee may make the improvement.
An improvements provision addresses making improvements to the patent, which may infringe on the patent claims. This is a challenging part of license negotiations since the licensor or the licensee may make the improvement.
What enables the licensor to track licensee royalty payments?
Audit/reporting/payment due date obligations
___ ___assigns accountability regarding exclusivity.
Exclusivity responsibilities assigns accountability regarding exclusivity.
Most often, the ___ is responsible for enforcing exclusivity and the ___is obligated to report patent infringement.
Most often, the licensor is responsible for enforcing exclusivity and the licensee is obligated to report patent infringement.
The patent ___ ___-___strategy is similar to sale lease-backs in real estate and with corporations.
The patent sale license-back strategy is similar to sale lease-backs in real estate and with corporations.
Lending strategies backed by patents are usually of two types: ___ and ___ ___
Lending strategies backed by patents are usually of two types: securitization and mezzanine lending
___ ___involves owners of related patents jointly licensing several patents to users.
Patent pooling involves owners of related patents jointly licensing several patents to users.
Patent pooling is more complicated than in-house licensing because royalty income has to be divided based on ___-___formulas.
Patent pooling is more complicated than in-house licensing because royalty income has to be divided based on revenue-sharing formulas.
Several risks are associated with investing in a patent:
- I___
- T___/___
- O___
- M___/___
- R___
- L___
- E___
Several risks are associated with investing in a patent:
1. Illiquidity
2. Technology/operational
3. Obsolescence
4. Macroeconomic/sector
5. Regulatory
6. Legal
7. Expiration
Most patents have a ___ year lifespan.
Most patents have a 20 year lifespan.
Here are the 6 characteristics common to both IP and real assets: (note not all have a positive relationship)
- Low ___ risk
- Correlation with ___
- ___of ___during instability
- Benefits from ___of ___
- Essential part of ___ ___
- ___-___risk and return
Here are the 6 characteristics common to both IP and real assets: (note not all have a positive relationship)
- Low operating risk
- Correlation with inflation
- Preservation of value during instability
- Benefits from scarcity of inputs
- Essential part of economic infrastructure
- Long-term risk and return
The 2 characteristics that IP and real assets do not share are benefits from ___ of ___and high correlation with ___.
The 2 characteristics that IP and real assets do not share are benefits from scarcity of inputs and high correlation with inflation.
IP (does/does not) benefit from scarcity of inputs.
IP does not benefit from scarcity of inputs.
IP has ___ correlation with inflation.
IP has low correlation with inflation.
