Opinion

Felix Salmon

More arguments for box-office futures

By Felix Salmon
May 17, 2010

Last week, I published an op-ed in favor of movie box-office derivatives, which was followed up by an argument against them from Joshua Brown. Brown gives six reasons why box-office futures are a bad idea, in order:

  1. Creativity, which Brown seems to think will suffer if the derivatives exchange takes off: “the influence of creative ‘believers’ will wane even further as the siren call of ‘hitting the number’ becomes even more crucial in the movie biz mindset,” he says. But the fact is that “hitting the number” is important precisely to the degree that your movie isn’t hedged. If you can hedge your investment and thereby trade lower upside for lower downside, then it becomes easier, not harder, to invest in more creative movies.
  2. Sequels and remakes: this is the flipside of the creativity coin, although Brown forgets that some of these things (The Godfather Part II, The Empire Strikes Back, Aliens, Toy Story 2, The Dark Knight) are actually rather good. Besides, insofar as sequels and remakes are profitable and have profits which can be locked in on derivatives exchanges, those profits can then be funneled back to the true-believer creatives, in a virtuous circle. After all, the studios won’t find the likes of Christopher Nolan if they don’t fund smaller creative films.
  3. Betting: I argued that people care more about movies they bet on, which is surely true. Brown reckons that people only bet on sporting events which they’re going to watch anyway, but it’s surely true that once they start betting, they watch more sporting events and care more about them. I’m not saying that people will watch films they’ve bet on just because they’ve bet on them. But I am saying that betting on a movie helps to heighten the sense of anticipation before the movie comes out.
  4. Manipulation: Hedge funds could buy up empty theaters on the opening weekend, in order to make profits on the futures! This is ridiculous, of course, but also weirdly wonderful, in a way: it’s free money flowing from speculators to Hollywood. What’s not to love?
  5. Regulation: “the jurisdictional wars over who should be supervising Hollywood futures will be hilarious to watch,” says Brown. Only they won’t: it’s already crystal clear that if the Senate allows these contracts to exist, they will be regulated by the CFTC. End of story. The MPAA might like to get involved, but it won’t.
  6. Insider trading. Bring it on! Derivatives markets are largely exempt from insider-trading rules to begin with, since derivatives aren’t securities. When people find out information about what’s going on with a movie, they might well trade on that information. Which means, in turn, that the box-office futures will be that much more accurate as a prediction of how well the movie is going to do. That’s information that senior production executives should love, seeing as how they’re often the last to know when it comes to this kind of information.

In any case, this is all pretty moot, since the CFTC’s main overseer, Blanche Lincoln (whose sister is a Hollywood film director) is sure to push through the ban on box-office futures. More’s the shame.

Comments
3 comments so far | RSS Comments RSS

It will be a shame if the public doesn’t get the right to bet on box office receipts. Just think of the potential business for dartboards, or for renting monkeys that are able to out-guess studio executives.

Posted by OnTheTimes | Report as abusive
 

Touche!

I think I’ve got you on point 2 (the majority of remakes and sequels are indeed awful and many more will get made because of bigger open possibility)

and on point 6 (no one is exempt from insider trading in equity options derivative market, where regulators turn first upon any suspicions. Also, recall the Deep Throat-esque clandestine meetings to obtain orange juice futures-influencing crop reports in the film Trading Places, while we’re talking movies.)

a good debate either way :)

Josh

Posted by ReformedBroker | Report as abusive
 

Taking derivative positions on box-office futures would be OK if it were only a game. Seeing what it’s done to manufacturing and real estate, it probably never should be more than that.

Will Gervais and Merchant make bank with epic PPV trilogy Extras @ The Box Office? You bet.

Posted by HBC | Report as abusive
 

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