Box-office futures exchanges dealt blow by Senate panel

Don't start planning your first box-office bet yet.

The Senate Agriculture Committee on Wednesday passed the Wall Street Transparency and Accountability Act, which includes in it a provision banning futures trading on movie box office. This is a big blow to Indiana-based Media Derivatives and Wall Street firm Cantor Fitzgerald, both of which had been given the green light to create their box-office futures exchanges by the Commodities Futures Trading Commission.

The major studios are fiercely opposed to futures contracts related to the movie industry, maintaining that the proposed markets could be manipulated and would create bad publicity for films before they reach theaters. The studios' chief lobbying group, the Motion Picture Assn. of America, has teamed up with the National Assn. of Theater Owners, the Directors Guild of America and the Independent Film and Television Alliance in a push to block the contracts.

In a statement, MPAA President Bob Pisano thanked the agriculture committee and added that the plans for these exchanges are "based on a faulty understanding of the film business and could cause real financial harm to both the film industry and other Americans drawn in by an online gaming platform that could be easily manipulated.”

A spokesman for the Media Derivatives exchange declined to comment, and a spokesman for Cantor Fitzgerald did not immediately respond to a request for comment.

Although the provision in the bill from the Senate Agriculture Committee is a setback, it is not a death blow. This bill will be merged with another financial reform package that is being written by the Senate Banking Committee. There is also no bill yet in the House that would prohibit the movie futures exchange. On Thursday, the House Agriculture Subcommittee on General Farm Commodities and Risk Management will address the topic in a hearing at which Pisano will testify.

-- Joe Flint 

Comments

[Henry]

Wake up America. The politicians in Washington are only looking out for themselves and their fat-cat donors in Hollywood.

[moviegeek23]

There are already dozens, if not hundreds, of web sites right now that offer box office prediction contests and/or promote analytical models and strategies for calculating box office performance.

Box Office receipts can be "wagered" on through many offshore sportsbooks and non-US exchanges such as Intrade. Intrade right now has multiple binary strike contracts on 4 upcoming movies.

If the "cast and crew" of these movies aren't already making a killing in these markets, perhaps pre-release information on these productions isn't so secretive after all?

The internet is like "word of mouth" on steroids. Once the movie release is announced, the public will quickly pass judgement on box office expectations. This happens right now in unregulated, purely speculative cyberspace. In fact, the rumor mill started cranking this week about the disaster that the Green Hornet movie is becoming, and that isn't scheduled for release until December.

The Trend Exchange is targeting institutional traders only, and these contracts would not be available to your average Joe on the street unless they traded them through an intermediated broker who had a clearing relationship with an approved FCM.

However, the Cantor Exchange would allow you to trade these movie futures through your credit card – not a very safe proposition, IMO. These are two separate business models being proposed. And the CFTC staff TWICE recommended Trend Exchange approval to their commissioners, but the "political animals" that head the CFTC were frightened by the media blitz created by the entertainment industry against it.

And know this - their objections are directly related to the attempts at transparency into box office receipt calculation that these markets would offer.

So much is tied to box office numbers (merchandising, future distribution, compensation, royalties, other contracts) that the studios like to "massage" these numbers to help their bottom line.

These attempts to hold these CORPORATIONS to the same accurate accounting standards that every other business needs to adhere to should be applauded, not condemned!

Also, these products being proposed will be exchange-based, federally-regulated, centrally-cleared instruments. The mortgage-backed derivatives that caused the recent financial meltdown were over-the-counter (OTC), off-exchange, UNREGULATED instruments.

The Trend Exchange will bring this existing, unregulated speculation into a regulated exchange-based marketplace.

These new markets will provide them an option to offset their existing financial risk. Futures trading is about managing risk through price discovery and risk transfer. It is about bringing standards, transparency and integrity to the management of economic risks that already exist.