As if America hadn’t already reached a saturation point with synthetic securities, some of the wizards on Wall Street have dreamed up a new investment vehicle which will no doubt further obscure the underlying value of an industry that is already held together by an amalgam of smoke, mirrors, tarot cards, baling wire and chewing gum.
Although weekend box office figures used to be the province of industry execs, today these numbers are followed avidly by movie nerds the way baseball junkies follow batting averages. Time wasted? Not anymore. The U.S. Commodity Futures Trading Commission has just authorized Media Derivatives to create an exchange for movie futures.
According to reports, the new exchange will sell contracts that will predict domestic ticket sales of newly released film. The contracts will treat films as a commodity (think soy beans), which is nothing new, since the major Hollywood studios have pretty much seen movies in this light since day one.
And while there’s nothing new about trading commodities futures (Aristotle wrote about an early version of the concept), it should be noted that on the Media Derivatives exchange an investor won’t actually have a contract tied to an underlying asset, as would be the case with soybean futures or stock options. In this case, you’re simply betting on the numbers. A closer analogue would be the lottery, or perhaps a horse race.
Of course, really serious movie nerds with a commercial bent are apt to think that they can forecast the numbers with a fair degree of accuracy, the same way that most sports fans believe they can predict game scores. Sports fans have long been able to put their acumen to the test, either through informal betting pools at work, or at Las Vegas, or with their local bookie. But the movie buff? Now he’ll have his chance as well.
Critics of the plan say the new exchange will provide a limitless opportunities for fraud and collusion, most of which will be difficult to police. For example, if a film company or studio senses that a soon-to-be-released film is probably a turkey, they could buy a lowball contract on the exchange, and then pull their advertising and promotion on the film, to ensure the film’s poor results. They’d lose money on the film, but potentially they could make much of it back on the derivative contract.
Also, tallying ticket sales is sometimes more of an art than a science. The figures released are often no more than studio estimates. If significant derivative money were at stake, how much could these figures be massaged? It’s possible that, irrespective of the real ticket sales of a film, unscrupulous studio execs could falsify their numbers in order to meet the needs of a particular bet on the derivatives exchange. You might think that it would be difficult to evade scrutiny with this sort of chicanery, but it’s generally acknowledged that the best fictions in Hollywood have been authored by accountants, not screenwriters.
On the other hand, an exchange such as this could provide filmmakers with legitimate hedge opportunities. Suppose Martin Scorcese has poured his heart and soul into a sequel to GoodFellas, but early market testing has indicated that the new picture (tentatively titled NotSoGoodFellas) will sink like a rock at box office. There was a time when Scorcese would have been powerless to do anything but hope for the best. But now he’ll have the opportunity to hedge his bets. He can hope that NotSoGoodFellas will draw viewers in swarms; meanwhile, he can take out a contract on the Media Derivatives exchange, betting that the film will tank. A potential disaster becomes a win-win situation.
If this works out, maybe Woody Allen will start making movies in America again.