Could you have predicted the record-shattering success of James Cameron s blockbuster film Avatar?
Two US financial firms want to allow investors to bet on the commercial success of a film, but the notion of a futures market has drawn the ire of a broad coalition of Hollywood s entertainment industry.
Arizona-based Media Derivatives is waiting for the green light from the US Commodity Futures Trading Commission, a market regulator, to launch a new market dubbed the Trend Exchange.
If authorized, it would be the first regulated exchange market in the United States to offer financial products based on a film s US box office receipts.
According to founder and chief executive Robert Swagger, the new platform would allow investors to transfer the considerable financial risks associated with major movie productions, much like farmers can reduce risk through futures contracts for crops such as corn or wheat.
Investors could make investments based on their estimate of how much a film will gross at the box office during a fixed period, and would realize losses or gains depending on the accuracy of their estimates.
Brokerage firm Cantor Fitzgerald is also seeking to launch a platform where contracts would begin six months before the film comes out in theaters, and would expire a month later.
Under the proposed plan, traders can participate in, and earn returns from, the movie business by buying and selling movie box office futures contracts.
Cantor is expecting a decision from the CFTC this month, shortly before this summer s big budget film are due out in theaters, including Iron Man 2, set to hit the silver screen on May 7 in the United States.
The number of people who visit movie theaters each year and form opinions about a film s success is in the tens of millions, Cantor Exchange president Richard Jacobs said in a statement.
We believe that s the reason the public response to this product has been very positive and we look forward to the start of trading.
But the two firms arguments have so far failed to win over Hollywood producers.
The Motion Picture Association of America (MPAA), an association of major Hollywood studios, criticized the projects as no more than the economic equivalent of legalized gambling on movie receipts.
Movie futures will simply allow the public to bet on whether a movie will be successful at the box office, it said in a letter to the CFTC dated March 23 in which it asked the regulator to ban the proposed financial products.
Joining the opposition with MPAA is the Directors Guild of America, the Independent Film and Television Alliance, the International Alliance of Theatrical Stage Employees and other groups.
The coalition said in a statement that the plans are based on faulty understanding of the film industry and create a risk of rampant speculation and financial irresponsibility at a time when the nation is still seeking to recover from an economic meltdown of the financial markets.
The statement added: With Congress and the president working on reforming the financial markets to help curb the abusive practices that triggered our nation s economic crisis, now is not the time to open up new and highly speculative marketplaces that could end up costing jobs and harming legitimate businesses.
Producers are worried about insider dealings in light of the number of people involved in making a film.
Knowledge, especially informed knowledge, about a film before it is screened or about the feature s commercial budget could have a big impact on predicting their box office earnings, studios say.
