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Film Futures: In Hollywood’s Future?

There’s a lot of debate in Hollywood – and Washington, D.C. – about two new film futures trading exchanges planned by high-roller financial firms.

What are film futures, you ask? That’s a good question. Here’s a typical definition of ‘futures’ from a financial reference volume:

A legally binding agreement to buy or sell a commodity or financial instrument in a designated future month at a price agreed upon today by the buyer and seller. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. A futures contract differs from an option because an option is the right to buy or sell, while a futures contract is the promise to actually make a transaction. A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying investment.

Oh, that seems pretty clear… Except for a couple of things.

In Hollywood there’s an old expression (and a lingering philosophy) that “You’re only as good as your last film.” Perhaps it’s true: have you seen “Invictus”?! That guy Eastwood keeps getting better and better…

But, on the other hand, if your last film tanked at the B.O. and the perception is you’ve lost that ‘Hollywood magic,’ then it might be tough to get your next gig. And that’s where the debate over film futures begins.

At present, there are two film futures exchanges planned: one is the Cantor Exchange, a subsidiary of Wall Street firm Cantor Fitzgerald LP, and the second is the Trend Exchange from Media Derivatives, which is Indiana-based. Their film futures essentially tie each film to a box office contract, with ‘investors’ purchasing contracts reflecting their expectation of the film’s box office performance in a given time. If your film’s performance exceeds your contract, you ‘win,’ but if the film performs below the level of your contract, you ‘lose’ the difference between your contract and the actual result. Cantor’s futures expire 4 weeks after a film’s release, while the Trend Exchange’s futures expire just before opening weekend.

Not so fast! says Hollywood… As financial regulatory debate finally begins in Congress, Hollywood’s lobbying arm, the Motion Picture Association of America, or MPAA, is using every bit of influence it has to oppose the film futures exchanges. Citing the potential for serious abuse like market manipulation, insider trading and other aspects of ‘gaming the system,’ the MPAA (along with the Director’s Guild, the National Association of Theater Owners and other groups) have done their utmost to prevent the exchanges, both of which have already received first-round approval from the Federal Commodity Futures Trading Commission. But a few significant hurdles remain.

Box office contracts remain to be approved by regulators, and a vote is scheduled for June. However, in the meantime, Arkansas democrat Senator Blanche Lincoln, chair of the Senate Agriculture Committee – which oversees futures trading – has inserted language into a draft bill which would prohibit film futures trading as part of larger regulatory control of derivatives. So, in essence, the future of film futures is… yet to be seen?

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