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High Places Studio (A)

Laura Anderson, a vice president in High Places Studio’s production-finance department, had to make a
recommendation to the studio’s president, Leo Walsh, regarding whether the studio should go ahead with the
production of an exciting new movie mystery. Walsh had the final vote on the development and production
of a movie script for a major box-office release. This new movie idea, like so many others in the film industry,
was risky. It could become a blockbuster hit, but it could also become a costly failure.

Anderson could recommend that Walsh forgo production of this movie drama and use the studio’s
currently available resources to produce a film from another script for Home Box Office (HBO), one of the
premium cable networks. Anderson had to decide what she would recommend as the best use of the studio’s
current production resources. The HBO option, a Western-themed drama, promised fairly certain profits.
Conversely, a huge hit at the box office could really put High Places on the map as a major contender among
the Hollywood studios. A box-office release would provide more prestige and profit for the studio if the film
were a hit, but also had the potential for significant losses if the movie failed, which High Places could ill
afford.

Laura Anderson’s Decision Problem

High Places Studio was a young studio by Hollywood standards, and needed to choose its films carefully.
As in the rest of the industry, there were constant concerns at High Places about money and a desire to
release the next blockbuster success. Limited production resources prevented High Places from undertaking
more than one film at a time. The cable option virtually guaranteed the studio profits of $3 million, after
expenses. The shoot would be structured carefully to control expenses, and the proceeds from the film would
be set according to a contract with HBO, so there would be little or no variability in the studio’s share of the
profits from the film.

The decision to produce a large-scale movie for box-office release depended on several factors. The first
important step was finding a good script, and Anderson was sure they had one. High Places had fallen in love
with the script for Tuna on Rye immediately. Tuna on Rye was a mystery set in Brooklyn in which the
protagonist, Gil Stevens, while working behind a deli counter, witnesses the abduction of a beautiful young
woman as she waits in line for her daily sandwich. The studio already had the cast in place, including Nick
Petty for the male lead. Petty, a hot new up-and-coming actor, had scored a big hit in his debut role as a
dashing private detective, and Anderson was excited about his prospects for this film. The script was tailor-
made for the summer date-movie scene, and Petty had an almost uncanny ability to mix good looks, wit, and

This case was prepared by Jenelle Hammes Sullivan (MBA ’99), under the supervision of Dana Clyman, Associate Professor of Business
Administration. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation.
Copyright  1999 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an email to
sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by
any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Our goal is to publish materials of
the highest quality, so please submit any errata to editorial@dardenbusinesspublishing.com. Rev. 8/01.

This document is authorized for use only in Gokce Basbug's PMBA_2024_Spring_SP2_Managerial Decision Making_GPT5078 at Sungkyunkwan Graduate School of Business (SKK GSB)
from Mar 2024 to May 2024.
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drama in his performances. With Petty on board, Anderson was confident that the studio was off to a great
start. Up to now, the details had been falling into place perfectly.

One of the most crucial factors in a winning film was the choice of a director. High Places had been in
discussions with two directors who had read the script and were interested in directing the movie. The first
director, Max Morgan, was one of the best-known directors in Hollywood. He had directed several well-
known hits in the past five years, and was known for putting together high-quality movies. Because of
Morgan’s power and prominence in the industry, High Places had agreed that if the studio were to go ahead
with the film and Morgan wanted to direct, the job was his. After extensive discussions with Morgan’s agent,
Anderson discovered that the script intrigued Morgan—he even said it was right up his alley. He planned to
direct if his schedule allowed. Morgan was currently in the midst of editing his latest melodrama, Catch of the
Day, and was uncertain he could be done in time. Based on those conversations, Anderson concluded that,
should High Places decide to go ahead with the film, there was approximately a 70% chance that Morgan
would be able to direct. Anderson determined that the total cost for a Morgan film would be $60 million.

There was, however, a major concern about Morgan. He had a reputation for running late on
productions, and tardiness could have devastating effects on the success of the film—High Places needed to
have the movie ready for release during the lucrative summer season. If Morgan could not complete the film
on time, Anderson estimated that High Places could only expect gross revenues of $30 million, resulting in
significant losses. Anderson assessed a 40% chance that Morgan would miss the deadline for summer release.
Of course, once the studio determined that the shoot would run late, it could still halt production and declare
the money already invested an unfortunate loss. Abandoning the project could reduce the negative publicity
associated with releasing a poorly received film, but in Anderson’s experience, by the time a film was deemed
dangerously late, it had already burned through 75% of its total costs.

If the film were ready for summer release, it could turn out to be a hit, a blockbuster, or a
disappointment. Given Morgan’s historical success and Petty in the starring role, Anderson estimated that the
film had a 70% chance of being at least a hit if released on time. Blockbusters were hard to come by, but
Morgan was known for capturing an audience. Therefore, upon further reflection, Anderson divided this
number into its component parts, and assessed a 20% chance of the film’s actually achieving blockbuster
status (and, therefore, a 50% chance of its being a hit and a 30% chance of its being a disappointment). If the
film were a blockbuster, Anderson estimated that it would gross approximately $180 million for the studio. A
respectable summer hit would gross $80 million and a disappointing film would bring in only $35 million,
even for a Max Morgan summer release starring Nick Petty.

In the event that Morgan could not direct the film, Anderson had Maggie McManus lined up to direct.
McManus was an able director with a few modest hits to her credit. Anderson concluded that the total cost of
the film under McManus would be $35 million. In addition, McManus kept a strict production schedule and
had never had a film run substantially late, so Anderson was convinced that the film would be ready for
summer. If McManus were to direct, Anderson felt it was equally likely that the film could be a hit or a
modest disappointment. Because McManus did not yet have the prestige of Morgan, Anderson valued a hit as
gross receipts for the studio of $45 million and a disappointment as $30 million. Anderson believed that that
there was really no chance that a McManus film could be a blockbuster.

In conversations with HBO, Anderson learned that she and the studio needed to make a decision quickly
about whether to approve the film for box-office release or go with the more certain HBO option. HBO was
in the process of planning its upcoming season, and needed a definite answer from High Places. If High
Places decided to go with HBO, the studio needed to let HBO know before it could hear back from Morgan
with his final decision.

This document is authorized for use only in Gokce Basbug's PMBA_2024_Spring_SP2_Managerial Decision Making_GPT5078 at Sungkyunkwan Graduate School of Business (SKK GSB)
from Mar 2024 to May 2024.