The 401st Blow :: Thoughts On Media

Film Futures

Posted in Distribution, Policy by Noah Harlan on April 16, 2010

The Comodities Futures Trading Commission approved today the creation of infrastructure for the first ever Hollywood Futures Exchange. There is still another round of approvals to go but it looks like Media Derivatives and Cantor Fitzgerald will both be starting film futures exchanges soon. Cantor Fitzgerald is the company that created and runs the Hollywood Stock Exchange (they are also the company that took a direct hit on 9/11 and for which my friend Kevin McCarthy worked that day, along with 657 coworkers, none of whom survived).

Hollywood has been vigorously fighting the establishment of the exchanges via an MPAA-led coalition. Their written argument is:

“A distributor for a variety of reasons could determine to substantially reduce or expand its marketing budget, which can materially affect opening weekend box office receipts. A major exhibitor could determine to show the motion picture on smaller or larger screens, which can materially affect audience interest and capacity.  (The Media Derivatives exchange) has no effective means to detect or prevent such conduct or to determine whether it was undertaken for valid business reasons rather than to manipulate futures prices.”

Senator Patrick Leahy, D-Vt., said the following:

“We are additionally concerned about the nature of these movie futures exchanges in the wake of the recent financial crises.”

I actually think those are weak arguments against the exchange. The better argument? The exchange can create it’s own market. Specifically, if you are betting on pork bellies, or gold, or concentrated frozen orange juice, you are assuming that the market is immutable. There is a supply and demand, both of which don’t respond to the market. The market reflects the demand. For example, if there is an early frost then orange juice production might be down, supply would be more limited and prices would go up thus futures would go up (ie: the future price will be higher than it is today so buy now and sell later). The problem with film is that an opening weekend box office can be massively affected by word-of-mouth. If people perceive that a film won’t be successful they’re less likely to go to it. If the stock exchange sees a dropping futures price on a film that could become the tale of the tape for the film – people would hear that the experts think the film isn’t going to be good and they, themselves won’t show up and voila, the market has changed the market.

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