A movie made by a motion picture company had a large amount of bad publicity during its production due to being over-budget, its length being too long, and an element of uncertain topic-content appeal. It’s opening weekend showed a solid but not spectacular box office, and the critics reviews ranged from unfavorable to mixed. Fearing the box-office revenues would decline as time progressed, they were impatient to close a deal for the television broadcast rights while the film was faring well.
In securing such a deal, the studio has two options (1) Auction the TV rights to the highest bidder; or (2) negotiate a deal directly with one of the major networks. They were on track in negotiating with a major TV network A. Typically, network deals allowed for an escalation provision that adjusted the price paid depending on the size of the theater revenues. Network As final offer was $30M for the TV rights, but only if there was no escalator clause. Although the motion picture company thought hard about auctioning off the rights, they decided to close the deal with network A for the guaranteed $30M. What are the pros and cons of reaching a negotiated deal versus auctioning the TV rights?