levelFILM: Building a Balanced Film Portfolio

In December 2022, after the independent film distributing company levelFILM Inc. experienced several box office failures, the company’s manager of sales strategy was wondering if the company needed to re-examine its portfolio strategy. Based in Toronto, Ontario, levelFILM Inc. operated in the highly uncertain film industry, in which it was almost impossible to predict how any one film would perform at the box office. The various distributors in the industry employed different strategies for managing risk, including building a large diversified portfolio of projects or pursuing a blockbuster strategy with heavy investment in fewer projects. The company’s manager was wondering which strategy would be most appropriate for levelFILM Inc. and how he might use extensive historical data that he had available to determine optimal risk management and investment returns options for the company.

This case can be used in undergraduate or MBA business analytics or finance courses. Students should have an intermediate understanding of spreadsheet models and should be familiar with the concept of optimization. This case provides a fundamental overview of the dynamics in the film industry, from production through to exhibition. An extensive data set, which accompanies the case, can be used to illustrate the high uncertainty in box office revenues. Students can discuss the impact on industry dynamics as derived from the data. The case also serves as an introduction to modern portfolio theory, including the benefits of diversification, in the non-standard setting of the film industry, which students will find engaging. The case analysis is an example of a non-linear portfolio optimization. Alternatively, the case is suitable as a follow-up case to show the versatility of modern portfolio theory and how it can be applied in a setting that is not immediately obvious. Specifically, after working through the case, students will be able to <ul><li>articulate factors that make the film industry a high risk environment;</li><li>explain the advantages of different film distribution strategies;</li><li>calculate portfolio statistics for investment returns and risk management;</li><li>identify the features of an efficient portfolio and why they are preferred; and</li><li>use non-linear portfolio optimization models to build an efficient portfolio.</li></ul>

• portfolio
• optimization
• non-linear