CFTC hears arguments on futures trading

Lionsgate's Michael Burns, MPAA present opposing views

Lionsgate vice chairman Michael Burns again sided with Cantor Fitzgerald and Media Derivatives and against the MPAA and other Hollywood groups Wednesday, telling regulators that trading in boxoffice futures should be allowed.

Several speaking in favor of the proposals told the Commodities Future Trading Commission in Washington that the ability to hedge risk via futures trading would amount to business as usual for studios, which are accustomed to spreading risk on pricey projects. They also argued that the question of whether studios decide to use such a financial instrument is irrelevant to whether boxoffice futures trading should be allowed.

"I think this is a tool we could use and all the studios would want to use to mitigate risk," Burns said.

The Lionsgate exec was one of the founders of the Hollywood Stock Exchange, a just-for-fun listing of boxoffice projections now owned by Cantor. He previously stated his support for the for-profit proposals in written remarks filed with regulators.

Burns' testimony was rebutted by MPAA interim CEO Bob Pisano.

"The first time we go short against one of our own movies, it will be the last time we ever work with those filmmakers," Pisano said. "And once that becomes public in the community, it will be the last time many filmmakers will work with us."

Movies have little in common with the sort of commodities one usually associates with futures trading, like orange juice or wheat, he contended. "Every single movie is unique," Pisano said. "You can't commoditize them."

He likened boxoffice futures to a gambling contract that "should not be given the cloak of authenticity."

Burns' backing of the plan notwithstanding, Pisano added that "the entire movie industry" is against boxoffice futures.

But the MPAA chief was outnumbered Wednesday, with six testifying in favor and two against.

CFTC officials seemed impressed with the case being made on behalf of boxoffice trading but stopped well short of indicating their support.

Commissioner Bart Chilton commended Cantor and Media Derivatives for coming up with "something that is neat and novel."

Chilton also called their plans "cool" but added, "I'm not sure cool is a business."

Cantor Futures president Richard Jaycobs said major studios might have enough cash to produce and distribute movies, but indies don't. A trading mechanism to help hedge losses could be useful, he reasoned.

He also chided the major studios for operating "in a financial world where their prognostications about a film's economic potential go unchallenged."

Clark Hallren of entertainment consultancy Clear Scope Partners said up to 40 banks once engaged in film loans and investments, but now there are nine.

"You can invite more capital into the business if you give them a way to control the volatility," Hallren said.

But Pisano called boxoffice futures "wildly speculative synthetic instruments."

"We don't need a repeat in our industry of what happened in the mortgage industry," he added.

Though the hearing made for interesting political theater, the matter could become moot before the CFTC renders a decision, likely next month. The U.S. House and Senate are readying a financial reform package containing language that would prohibit boxoffice futures.
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