Film industry seeks to block movie exchanges
Last January, I borrowed from Henry Hu at the SEC and wrote, “Some derivatives turn banks into ’empty creditors’ that don’t care whether debtors survive or fail.” Shuttling credit risk back and forth, from one institution to another, is not a good thing. To my way of thinking, it creates an endless supply of toxic securities.
Hollywood, here’s a page from Wall Street’s playbook.
The Financial Times reports that Cantor Fitzgerald and Veriana Networks are introducing movie futures, where it’s possible to bet for or against films.
The companies behind the two exchanges say the markets they plan to launch will allow traders to hedge their investments in films.
In other words, Hollywood can produce garbage and short away the financial downside.
Are we destined for an endless supply of toxic films?
Think about it. Empty creditors don’t care what securities they incubate. What does financial indifference—the petri-dish mentality—mean to Hollywood? Will derivatives leave us with empty producers, who profit from their box-office bombs?
The New York Times describes my novels as “money porn,” “a red-hot franchise,” and “glittery thrillers about fiscal malfeasance.” Through fiction I explore the dark side of money and the motivations of those who have it, want more, and will steamroll anybody who gets in their way.
Ok Norb, thought about it, but still don’t see your point.
When a movie release is announced, the internet acts as “word of mouth” on steroids. There are already dozens of web sites that run box office prediction contests and/or promote analytical models and strategies for calculating box office performance. These two ventures propose to bring this existing, unregulated speculation into a regulated exchange-based marketplace.
If a studio ever attempts to intentionally produce a movie bomb, the public is likely to know well beforehand, and the studio will not be able to offset their risk because the other side to trade with will not be there.
There are many parties that are at financial risk with the production and distribution of a movie. They’ve already estimated what the likely box office return needs to be for them to profit from the movie.
These new markets will provide them an option to offset their existing financial risk, which is what existing futures markets provide.
Movie Geek, I like your balanced observations—especially the idea of moving unregulated speculation into an exchange-based marketplace. Fair point.
I also doubt anybody would produce a bomb on purpose. Sounds like The Producers, and we know what happened there. 🙂
But where’s the value-add of these options? Movie producers can lay off their risk by selling LP interests which is a huge part of the movie-making business. So instead of trading the downside through securities, why not limit risk through a defined capital commitment—the old-fashioned way where everybody is committed to the project.
Howdy there,just observed your Blog when i google something and wonder what webhosting do you use for your wordpress,the speed is more faster than my web site, i really want to know it.will back to check it out,many thanks!
Go Daddy.