Film Bigs Bid to Nix Box-Office Futures

Posted by: Ben Steverman on April 9, 2010

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Is greed good for the movie business? If regulators give their OK, within months movies could be trading on financial markets, with investors placing bets on which films will be the next summer blockbuster.

Hollywood has its doubts, with the Motion Picture Association of America and others fighting the proposals, now being reviewed by the U.S. Commodity Futures Trading Commission, or CFTC.

One proposal comes from Cantor Exchange, which says its first contract will be based on Wall Street: Money Never Sleeps, (pictured above) the sequel to Oliver Stone’s 1987 movie.

Up to six months before a movie’s scheduled release, traders would start buying and selling a futures contract linked to the film’s expected early box-office receipts.

Cantor Exchange says the market could give those in the movie industry financial flexibility. The firm says on its web site:

These features should make it easier for a new class of film investor to enter the market. [snip] …contracts will make it possible to estimate the future box office potential of a film project many months in advance, [so] film financiers will no longer need to rely on conservative internal estimates of box office potential.

Another proposal, offered by Media Derivatives, would be limited to institutional investors. But Cantor Exchange’s contracts could be traded 24 hours a day by both institutions and individuals. And the product appears aimed at the movie-loving public. Andrew Wing, the chief executive of Cantor Entertainment, said in a statement:

The number of people who visit movie theaters each year and form opinions about a film’s success is in the tens of millions. We believe that’s the reason the public response to this product has been very positive and we look forward to the start of trading.

It raises the possibility of movie buffs turning into day traders.

The MPAA and other groups sent a letter Apr. 8 to the CFTC warning that the futures contracts would be “harmful and burdensome” to motion pictures. The letter raises some important points.

First, there is no way of knowing that futures trading will be a good predictor of box office success. The letter calls the prediction method “false, unreliable and non-economic.”

In any case, trading could become a self-fulfilling prophecy, with negative market activity tarnishing a film before it is even released, either by souring the public or by hurting distribution and financing.

Finally, for Hollywood, trading could create conflicts of interest. The movie industry already runs on rumor and gossip. Once trading starts, much of that becomes a form of insider information.

The Futures Industry Association is sticking up for the proposal. In an Apr. 8 statement, the trade organization says there is a need for more effective risk management tools in movie financing, and points out the futures markets are well regulated.

The FIA has no view on whether or not the proposed movie futures contracts will succeed. We encourage the CFTC to evaluate these applications on their merits and let the marketplace decide.

Hollywood’s biggest concern is that these financial products will be successful. Well-connected people in Tinseltown — and there are many, from the assistant in the editing booth to the friend of the gaffer who gets a ticket to a preview screening — will have access to potentially lucrative inside information. Whatever the financial effects of box-office futures, this could easily distort the creative process necessary to make great movies.

UPDATE: The CFTC was slated to decide on the Media Derivatives proposal on Apr. 9, but the company now says in a statement that “at the request of the chairman of the CFTC and after individual meetings with commissioners,” it agreed to extend the deadline until Apr. 16.

Reader Comments

guillone

April 14, 2010 9:14 PM

One of the worst ideas I've heard of.
When is enough, enough with these guys?
How about futures contracts on the Bears/Cowboys
next season?
What's the difference between these so-called investments and just calling your bookie?
They already have risk insurance for films, give it a rest already.....

ps

April 18, 2010 6:21 PM

What good does this do? The FinServ industry continues to be arrogant and tone deaf....with all going on, the next big thing is placing a bet on a movie? ...despite what the financial gurus say, you can not commoditize artistic expression, which is what will be the first casualty...money men and MBA lackeys in a BAU mode, pure and simple.. for once I agree with H-Wood.. and this is VINTAGE LUTNICK....

Aruhi

April 19, 2010 10:04 AM

Nice Post...


Regards,

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April 22, 2010 8:57 AM

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ChrisFS

April 28, 2010 8:12 PM

Simply from a 'yet another investment toy' perspective, it's interesting,
however I am concerned that it would further tilt the movie offerings to sequels and spinoffs. Movies that people could recognize instead of new movies. A movie like the original Star Wars, would not do well in a pre release futures market because no one would have anything to gauge it against.

Pick escort

May 20, 2010 11:50 PM

Really it is rather interesting for me to read that post. Thanks for it. I like such topics and everything that is connected to them. I would like to read more on that blog soon.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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