The MPAA Doesn't Want Anyone Shorting Movies

from the show-me-the-money dept

Last December, we noticed the revival of an interesting idea: a futures market on movies. There are actually a few companies trying to realize this concept: the Hollywood Stock Exchange (HSX), Veriana Networks’ TrendEx, and simExchange (for video games). Instead of only allowing investors to trade with fake money, HSX and Veriana are looking to let investors use real money to trade shares in the prospects of movies, and have asked the Commodities Futures Trading Commission (CFTC) to approve these exchanges for trading with actual money.

However, the MPAA isn’t too keen on the idea of having outsiders gamble on their movies. Understandably, the MPAA doesn’t want to deal with complex liability for various kinds of insider trading or “market manipulation” that might result if studios/producers/directors could profit from simply making marketing decisions. Additionally, the MPAA likely also worries that movie futures would further encourage movie piracy — given that investors who are shorting movies may have a significant financial incentive to distribute copies of movie files before a theatrical release.

These futures exchanges actually bring up several interesting questions regarding the metrics of movies — and how betting big on theatrical releases could be open to alternative marketing techniques. And if these market exchanges are allowed, will Hollywood be forced to adapt to additional business models? Could investors push studios towards taking advantage of their infinite goods or towards even more stringent copyright enforcement? These exchanges could also determine how much movie popularity can really be manipulated by investors and marketing efforts. But we may never know without real money behind movie trading. So, with this fairly important change to the movie industry at hand, the Commodity Futures Trading Commission is taking a bit longer to decide what the fate of these exchanges will be.

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Companies: hsx

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Comments on “The MPAA Doesn't Want Anyone Shorting Movies”

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13 Comments
Christopher Gizzi (profile) says:

Futures Have an Underlying Instrument

I’m skeptical of these “exchanges” and would be cautious in approving them for more than the (arguably) silly reasons the MPAA and others might concern themselves with.

With almost every futures market, there is a real (scarce) underlying instrument that underpins the trade. For oil, natural gas, coffee, sugar, cocoa, gold, silver, & copper, each trade is a contract which includes “taking delivery” of the physical good in the price. Many contracts are bought & sold and if you don’t net your position after the last trade date, you just bought yourself 1,000 barrels of light sweet crude and someone will be shipping it your way soon.

But with these types of “markets” you’re really betting. There isn’t, to my knowledge, any physical product or stock certificate you get if you keep a position after the last trade date. Yes, the financial markets can be like betting but it’s not really supposed to be like that. These types of exchanges sound as if they could be more like binomial betting or variations on that concept. It’s a pure cash bet. Moreover, there is already shorting going on with Hollywood – its called the NYSE – and it happens with their REAL stock.

I will say this of the system, however. Some reports suggest the prediction accuracy is well above most other analysis – as high as 96% by some sources. If I were the MPAA, I’d study these legalized betting rings and determine what goes into them to help build a better product.

I don’t know how it would alter their business model, though. The studios wouldn’t be issuing “ownership” in the product like a stock certificate nor would they take delivery of an commodity. The market would just be a bet on how successful the movie would be. If the industry changes its business model – to stream movies or even give them away for free – the underlying profitability of that creative process is still what this market would bet on.

Michael Ho (profile) says:

Re: Futures Have an Underlying Instrument

Christopher,

That’s a whole other topic…. whether or not a market based on statistics is a rational concept. I purposely avoided addressing that point when I was writing this post up — mostly because I wasn’t sure if futures markets based on non-real commodities already existed.

Certainly there are all sorts of prediction markets and gambling pools, but are any of them endorsed by the SEC? Hmm.

NAMELESS.ONE says:

wait a minute

“given that investors who are shorting movies may have a significant financial incentive to distribute copies of movie files before a theatrical release. “

so they invest in a film to bet on it losing money and somehow come out making money , after investing and having said film thusly paid for?

something doesn’t add up and i know about shorting its a practice that if a company did it in bad times they can offset those bad times to a small degree in the short term

what the mpaa really doesn’t want is for “non investors of a film to short it and thus make buckets of money cause they know they suck at real businss”

Mario says:

CFTC backs film futures

CFTC already decided to back the film futures: http://www.businessweek.com/news/2010-04-14/-iron-man-bets-loom-as-cftc-staff-is-said-to-back-film-futures.html

I am pretty sure (wouldn’t say “convinced”… yet) that this will be the final nail in the coffin of MPAA and 200 million apiece movies. And, I for one, welcome it wholeheartedly because of that.

I can even see anti-anti-piracy groups using this to mess with the movie industry. That would be some sweet irony – the regulators finally create some rules to hurt one of the tentacles of the vampire squid for a change, not just the main street folk.

Adam Wasserman (profile) says:

Re: CFTC backs film futures

Mario wrote:

I can even see anti-anti-piracy groups using this to mess with the movie industry. That would be some sweet irony – the regulators finally create some rules to hurt one of the tentacles of the vampire squid for a change, not just the main street folk.

Ok, I’ll bite: how specifically do you see anti-anti-piracy groups using this to mess with the movie industry?

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