Movie futures market approved

Major studios have opposed betting on boxoffice

The trading of boxoffice futures could begin by the third quarter now that federal regulators have granted approval for Media Derivatives to launch its Trend Exchange.

But while TrendEx, as it calls itself, has a right to exist as a designated contract market as of Friday, it still needs approval to specifically trade futures tied to boxoffice receipts.

On Friday, the five members of the Commodity Futures Trading Commssion voted unanimously -- though at least a couple said reluctantly -- to approve TrendEx, and they'll take up approval for boxoffice trading before a June 7 deadline.

TrendEx is one of two companies, the other being Cantor Exchange, trying to convince regulators -- and skeptical studio executives -- that creating a market around movie boxoffice can be a useful tool for hedging investments.

The MPAA, DGA, National Association of Theatre Owners and others are vehemently opposed to the idea and have all but promised never to use such financial instruments. And they seem to have convinced some lawmakers to take up their cause, most notably Sen. Blanche Lincoln, the Arkansas Democrat who, as chairman of the Senate Agriculture Committee, holds sway over the CFTC.

On Friday, Lincoln added new language to an existing draft proposal for legislation that would outlaw the trading of contracts based on "motion picture boxoffice recipts, or any index, measure value, or data related to such receipts."

Speaking during a conference call with reporters Friday, TrendEx CEO Robert Swagger said such a move unfairly takes into account the opinion of the six largest studios over all other participants in the movie industry.

"If they don't let a product like this become available, it's not hurting the big studios, it's hurting all the independents," he said.

He also suggested that the MPAA, even if it wins its battle against TrendEx, likely would still lose the war.

"The MPAA could be upset and targeting not only myself and Cantor today, but the (Chicago Mercantile Exchange) could self-certify these products and start trading them tomorrow," he said.

An MPAA lobbying blitz has encouraged other lawmakers beyond Lincoln, and from both parties, to express their concerns to the CFTC.

MPAA interim CEO Robert Pisano said in a letter Thursday to CFTC chairman Gary Gensler that boxoffice futures are fraught with the sort of peril that would lead to lawsuits against studios filed by unsuccessful traders.

But Swagger said Friday that, even while the MPAA has been working against TrendEx, "several of the constituents of the MPAA" have been working with TrendEx to help design the boxoffice exchange.

He also said the film financing community is expected to benefit from boxoffice futures whether or not the big six studios participate in trading, and he said TrendEx has lined up partners -- some from the entertainment industry -- who are interested in taking an equity stake in the company.

"There's a lot of liquidity that's dried up in the entertainment industry," Swagger said. "All we do is simply bring other individuals to the table that can help assume part of that risk with the potential of receiving part of the upside."

Swagger said that if all goes well with the June 7 deadline, wagering on opening weekend boxoffice performances of widely released films will begin in the third quarter, and other instruments would follow. One he suggested involves investing in slates of movies, as opposed to individual pics.

He said TrendEx has no intention of competing directly with Cantor's plan whereby individuals and entities would wager on how much movies take in at the domestic boxoffice during their first four weeks of release.
comments powered by Disqus