Hollywood studios, through lobbying arm, object to box office futures markets

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Hollywood’s big movie studios are trying to ensure that there’s no future for box-office futures.

The Motion Pictures Assn. of America, the lobbying group that represents the six major film studios, has notified the U.S. Commodity Futures Trading Commission that it objects to two planned futures markets that would let investors essentially bet on what upcoming movies will gross at the box office.

‘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,’ said the letter, which was signed by MPAA’s interim chief executive, Bob Pisano.

One of the pending futures exchanges, run by an Indiana company, Veriana, was set to receive final notification from the trading commission on Wednesday when the MPAA’s letter arrived. Veriana agreed to push that deadline back until April 2 to answer the movie association’s questions.
“We are confident the issues raised by the trade organization are without foundation, but we are happy to readdress them with the CFTC,” Veriana’s chief executive, Rob Swagger, said in a statement.

The second planned market, the Cantor Exchange, backed by Wall Street firm Cantor Fitzgerald, is set to receive notification from the trading commission on April 20.

Richard Jaycobs, head of the Cantor Exchange, said his company previously reached out to the MPAA to consult with the organization on its market but didn’t receive a response. ‘We’re disappointed that this arrives at the relatively late stage of the game that it has,’ he said.

Both the Cantor Exchange and Veriana view the exchanges as a tool that will allow movie studios to reduce the risk of investing in movies, similar to the way farmers swap corn or wheat futures to protect themselves against crop failures.

The MPAA’s letter raised many issues that had been echoed by other critics of the exchanges. The biggest concern is that the exchanges could be subject to abuse by speculators inside the industry with non-public information. For example, a buyer or seller of a futures contract may have inside knowledge about a movie’s marketing plans, thus possessing insight into its chances at the box office.

“It will be virtually impossible for the exchanges, the commission or the studios to enforce compliance,” Pisano wrote.

Jaycobs said the MPAA’s assertion that Hollywood insiders won’t be able to trade on the market due to their inside information is ‘factually incorrect,’ as his company had an enforcement plan set up to deal with potential insider trading. Veriana has said it has a similar mechanism in place.

Regardless of how the trading commission views these questions, opposition by the MPAA could be a major blow to the planned exchanges, as both were hoping to attract Hollywood insiders. Since the MPAA represents Paramount Pictures, Sony Pictures, Twentieth Century Fox, Universal Pictures, Walt Disney Studios and Warner Bros., Pisano’s letter is a sign that none of them want to get involved and would discourage their partners from doing so.
‘The only thing it seems to be doing is setting up a way for people to gamble on domestic box office receipts,’ MPAA Executive Vice President Greg Frazier said in an interview. ‘That is not good for our members who first and foremost have an image and integrity to protect.’

Jaycobs said, however, he was confident that entertainment industry professionals would eventually change their tune.

‘When you introduce a new financial product to an industry, this is actually a very common response,’ he said. ‘We’re going to address it.’

-- Ben Fritz and Nathaniel Popper Related: Investors can soon make bets on movie box office