Valuation of Intangible Intensive Firms: Bridging the Gap Between Theory and Practice

Abstract

This thesis analyses and discusses the applicability of different valuation models to intangible intensive firms within the media and entertainment industry, more specifically the film and TV segment. Although academia has produced an array of valuation models for both simple and complex valuation situations, the difficulty of applying these in the real world diminishes the valuation models contribution to practitioners. Further, it is established that the choice of valuation model to a large degree should be dictated based on the availability of data for estimating input variables rather than solely being dictated by a match of model assumptions and real option characteristics. A majority of real options within the media and entertainment industry display complex and high-dimensional issues, which call for more advanced valuation models to incorporate the value of having an option to expand in addition to these firms’ value of the current business activities. The thesis also sheds light on the issues of accounting standards relevant to intangible intensive firms within the media and entertainment industry, as these have a direct impact on the valuation process from an outsider perspective. Further, the incorrect categorisation of capital expenditures and operating expenditures are expected to have a time difference impact on the financials of the firms operating within the media and entertainment industry. In addition hereto, the thesis explores a wide-ranging array of literature available with respect to valuation models and aim at providing a high level overview of the academic world on the matter, as well as analyse the popular models along with an application for a case study of Netflix.