Big screen battle: Hollywood vs. box office speculators
The film industry is fighting proposals to create a 'futures exchange' for investors speculating on Hollywood box office profits and losses. No word yet on who has the screen rights.
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The Chicago-based firm, Veriana, carries on its website this rebuttal, written by the Futures Industry Association (FIA):Skip to next paragraph
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“The MPAA has asserted that futures trading is a form of ‘legalized gambling’ that has no commercial interest or value to the public. Nothing could be further than the truth. Futures markets have proven to be vitally important mechanisms for risk management, as evidenced by the phenomenal growth in the use of futures contracts by a wide range of commercial and industrial enterprises, both here and abroad.”
FIA also counters MPAA claims that these new contracts could lead to “rampant speculation and financial irresponsibility…. It is clear that the MPAA is not familiar with the futures markets or the regulatory framework within which they operate.”
Industry observers similarly line up on both sides of the issue.
“I agree wholeheartedly with the MPAA and the movie industry who hold that this is pretty much a thin veil for basic gambling,” says Chris Lanier, president of Motion Picture Intelligencer, a box office prediction firm. “If you want to lose all your money that badly, why not just go to Las Vegas?” And Douglas Gomery, a retired professor of the economics of cinema at Maryland University, has called the idea “gambling, pure and simple.”
New investors, more capital
“In particular, the trading of these contracts gives useful information to all market participants about the demand, profitability, and growth potential of various types of movies, including the film studios,” Pagano says. “The exchanges can aid in the movie industry because film investors will now have a way to hedge their investments which, in the end, can attract new investors and generate more capital from existing investors.”
He surmises other reasons for the vehement industry resistance.
“It could be that the film studios are concerned that they will lose their monopoly position on information about various movies because the futures exchange will publish information which all market participants can then observe and analyze,” says Pagano. “This is the type of information that is currently held privately by the film studios and thus they could be fearful of losing their informational edge to non-Hollywood players.”
As debate continues to heat up prior to the CFTC’s decision, Pagano says one concern of the film studios that is correct pertains to market manipulation.
“It is crucial that the exchange operator … create a set of trading rules and monitoring systems to ensure the market is a level playing field for all participants,” he says. ”Because if it is perceived to be a rigged market, then retail investors and possibly other market participants can be taken advantage of and this could also be disruptive to the film studios’ operations.”