Virtual stock exchange expanding
Hollywood Stock Exchange launching real-money tradingThink Hollywood Stock Exchange the next time someone asks about a movie's boxoffice prospects and then adds, "Wanna bet?"
Since 1998, HSX has allowed wannabe boxoffice brainiacs to buy and sell valueless shares in Hollywood films based on their fearless forecast of what they will ring up. But within the next 90 days or so -- assuming final regulatory signoffs go as anticipated -- HSX plans to launch a second, real-money exchange capitalized in the "tens of millions of dollars," said Andy Wing, CEO of Los Angeles-based Cantor Entertainment.
"I don't know if we're on the five-yard line or the one-yard line, but we're close to the end zone," Wing said.
A Hollywood veteran who previously was CEO of film tracker Nielsen Entertainment, Wing joined HSX in May 2007.
Individual investors are expected to be the first to use the new exchange, which will list imminent and current film releases with their projected four-week domestic boxoffice. HSX will operate much like any other futures-trading scheme, allowing buyers to acquire long or short positions in trades.
Alternately, customers will be able to register as sellers of shares -- or "contracts," in exchange argot -- effectively placing a wager based on their expectations of a film's performance.
Wing hopes movie producers will embrace the exchange as a means of hedging risk on films and increasing the liquidity of their film investments. Should a film financier or studio executive see one of their movies posted with an unrealistically high or low b.o. projection -- and who better to gauge that than a studio suit? -- the exec could wager a well-informed bet that ultimately might pad profit or cut red ink on a pic.
At least, that's HSX's pitch. First, the exchange must attract enough investor capital to grow by a factor of 10 or more from its launch funding.
"The studios will come as soon as it gets to a critical mass of dollars that makes it worth their while," Wing said.
Significantly, HSX will settle each contract four weeks after a film's release. That should be a lure for producers looking for more immediate return on film investments than is possible from the movies themselves, which generally must cycle through all distribution windows before paying out any profits.
Film financiers will be allowed to invest in HSX an amount equal to a minority percentage of their total investment in a movie, under the U.S. Commodity Futures Trading Commission rules being finalized. Government regulators and HSX compliance officers also will guard against improper insider activity directly bearing on the performance of films.
To participate in the exchange, investors will buy "contracts" priced at one-one millionth of a movie's projected boxoffice. So a minimum contract on a film projected to gross $60 million would cost $60.
Films will list on HSX from the time they are announced in the industry trade papers as being greenlighted, with trading to begin six months before to a pic's anticipated wide-release date.
Cantor filed a request for approval by the CFTC in November 2008 and recently fielded queries from regulators.
"They've given us a shortlist of questions, and we're in the final stages of regulatory review," Wing said.
If the concept seems a bit quirky and regulatory approval dubious, consider this: HSX already has a competitor. Media Derivatives, a subsidiary of Los Angeles-based investment firm Veriana Networks, also has filed paperwork with the CFTC and hopes to launch its own boxoffice futures exchange soon.
And like HSX, Media Derivatives aims to woo Hollywood investors.
"The idea behind Media Derivatives is to provide the entertainment industry with a mechanism to hedge the financing risk of production," Veriana chief Rob Swagger said.
Media Derivatives, which has retained Clear Scope Partners' Clark Hallren as a financial consultant, filed paperwork with the CFTC in the fall and aims for regulatory approval this year. In a distinction from HSX, transactions made over the Media Derivatives exchange would be placed through third-party brokers.
Both exchanges will closely mimic exchanges dealing in commodities such as wheat, oranges, electricity and foreign currency.
Cantor started plotting its move into real-money trading back in May 2001, when it acquired then-cash-poor HSX. But just a few months later, the firm lost one-third of its employees in the 9/11 tragedy, and the project was shelved for several years.
"The universal appeal and diverse consumer views of the entertainment sector makes it particularly attractive," Cantor's then-CEO Lee Amaitis said at the time about the firm's HSX acquisition.
Most of HSX's revenue comes from industry advertising on HSX.com. The site also sells customer-use data to entertainment marketing outfits.