Two firms want to turn America’s growing obsession with how much money movies make into a full-blown futures exchange through which investors can peculate on Hollywood profits and losses, much as traditional commodities markets offer wagers on the future prices of pork bellies and orange juice.
The two exchanges – one from New York, another based in Chicago – hope to gain approval and open for investors in April. But they have run into a ferocious hailstorm of protest, some from the very folks the financial firms say they hope to benefit, first and foremost – the six major movie studios.
“The reputation and integrity of our industry could be tarnished by allowing trading in the movie futures contracts in a manner which allows them to be viewed as the economic equivalent of legalized gambling on movie receipts,” says Greg Frazier, executive vice president of the Motion Picture Association of America (MPAA), in an e-mail.
The trade group has requested a period of public discussion before any such exchanges gain final approval from the Commodity Futures Trading Commission (CFTC).
Such an airing of industry concerns is a minimum provision in today’s troubled financial times, says Mr. Frazier, who adds, “Anyone who has followed
the meltdown of the financial markets, and the pain this caused people throughout America, knows how important it is to ensure that the establishment of new financial marketplaces does not open the door to rampant speculation and financial irresponsibility.”
Speculation isn't inherently bad
While the industry registers its protests, media and financial observers suggest that the issue is more complicated.
“The MPAA’s concerns are a bit overblown – these claims against ‘evil’ speculators [are] age-old and ring a bit hollow because [they] ignore potentially very useful price signals," says Michael S. Pagano, professor of finance at the Villanova University School of Business in Pennsylvania.
"Speculators are not, by definition, bad for society," he says. "In fact, they can be quite good by providing liquidity and price signals that would not exist if these players were not present in the market.”
Will it be just another form of gambling?
“The box-office chart is already a commoditization of movies,” he says, adding that the uproar is just one more chapter in the tension between art and commerce that has dogged Hollywood since its founding.
However, one long-time observer minces no words in his condemnation of the proposals: “This is gambling pure and simple,” says Douglas Gomery, retired professor of the economics of cinema at the University of Maryland, in an e-mail.
“Hollywood specialists have never figured out how to hedge these bets other than to know that 1 in 10 will make a great deal of profit. FYI, three-fourths of critics predicted "Avatar" would be a failure.”
Even if the exchanges clear legal hurdles and concerns about insider trading after public hearings are held, their very existence could create a public relations nightmare for the movies.
“[The exchanges] are the coming together of art and commerce in yet another extension of that age-old debate,” says Mr. Degarabedian. “It might give the movies a black eye if people have lost their shirt, because it might turn them off to movies.”