LOS ANGELES, April 6, (AP): Think you’re better than Hollywood at gauging whether an upcoming flick will be a box office bomb or a sleeper hit? You’d get a chance to put your money behind that under two proposals that movie studios are denouncing as legalized gambling.
The proposals the U.S. Commodity Futures Trading Commission are expected to rule on this month would let movie fans, industry executives and speculators bet on expected box office receipts. Investors profit if their predictions come true and lose if they don’t.
These online trading forums would be similar to futures markets common for commodities such as corn, pork bellies, natural gas and silver. Although goods are rarely exchanged directly through such markets, they let buyers and sellers reduce risks by locking in prices months ahead of time. A corn farmer might want to do that in case a bumper crop pushes prices down too low.
Now, two companies want to bring that concept to Hollywood, a notoriously risky industry in which big-budget productions can go bust in a single weekend and independent movies can become unexpected hits. But the investors most likely to benefit from such an exchange — the six major Hollywood studios — have rallied against the proposals.
Exchange
Although the companies behind the exchanges still plan to proceed, regulators pushed back a decision on one of the proposals, Trend Exchange from Veriana Ventures, amid the last-minute opposition.
A decision on the other proposal, Cantor Fitzgerald LP’s Cantor Exchange, is expected around April 20.
The studios’ trade group, the Motion Picture Association of America, argues that the proposals tarnish the reputation and integrity of the movie industry by authorizing “legalized gambling on movie receipts.”
The organization also complained that so many people screen movies before they are released that it would be “virtually impossible” to prevent insider trading.
The backers of the proposals say they don’t need studios’ involvement to succeed, though that’s akin to corn farmers staying out of the futures market for corn.
“The studios only represent a small part of the hedging community,” said Rich Jaycobs, president of the proposed Cantor Exchange.
Russ Andersson, Veriana’s director of risk management, said other players with large stakes in movies, such as directors, actors, financiers and theater owners, might have doubts about the box office potential of some projects and would be willing to take part.
Cantor Fitzgerald already runs the Hollywood Stock
Virtual
Exchange, a virtual market in which shares of celebrities and movies rise and fall with their popularity. But while that market trades on “Hollywood Dollars,” those using Cantor Exchange would use real currency to bet on a movie’s prospects.
(Cantor Fitzgerald is also behind a venture that lets people use wireless devices to bet on sporting events while roaming around casinos. The devices, approved by Nevada gambling regulators, also casino mainstays such as black jack as well.)
Under both proposals, no actual goods or shares in films would change hands. Trading would simply offset deals made in the real world. Movie fans and others without a direct interest in the films would be able to participate as well, absorbing some of the risks from producers and other investors.
Investors would be able to hedge against potential flops by preselling a share of future box office receipts. The exchanges could even guard against likely hits such as the upcoming “Harry Potter” and “Twilight” sequels falling short of projections.
If a movie doesn’t do as well as expected, investors would at least be guaranteed revenue from those presales, known as futures contracts.
Meanwhile, Could you have predicted the record-shattering success of James Cameron’s blockbuster film “Avatar?”
Two US financial firms want to allow investors to bet on the commercial success of a film, but the notion of a futures market has drawn the ire of a broad coalition of Hollywood’s entertainment industry.
Arizona-based Media Derivatives is waiting for the green light from the US Commodity Futures Trading Commission, a market regulator, to launch a new market dubbed the “Trend Exchange.”
If authorized, it would be the first regulated exchange market in the United States to offer financial products based on a film’s US box office receipts.
The Motion Picture Association of America (MPAA), an association of major Hollywood studios, criticized the projects as no more than “the economic equivalent of legalized gambling on movie receipts.”
“Movie futures will simply allow the public to bet on whether a movie will be successful at the box office,” it said in a letter to the CFTC dated March 23 in which it asked the regulator to ban the proposed financial products.
Joining the opposition with MPAA is the Directors Guild of America, the Independent Film and Television Alliance, the International Alliance of Theatrical Stage Employees and other groups.