Boxoffice trading execs fire back in D.C.
Cantor, Media Derivatives chiefs shoot down MPAA claimsTop executives of the two firms under attack by most major movie studios and others in Hollywood over plans to create futures commodity markets based on boxoffice returned fire Thursday during a House subcommittee hearing in Washington.
Richard Jaycobs, president of the Cantor Futures Exchange, said his firm expected opposition but not "the inaccurate, over-reaching and extraordinary claims of gambling, manipulation and commercial damage made by the six largest studios' trade association, the MPAA."
Jaycobs said that despite the vehement response from much of official Hollywood, the proposal does have support from some movie companies. He cited a letter sent April 16 by Lionsgate vice chairman Michael Burns to the Commodity Futures Trading Commission.
He quoted Burns as writing, "We believe a market in domestic boxoffice receipts would substantially widen the number and breadth of financing sources available to the motion picture industry by lowering the risk inherent in such financing."
Burns and Max Keiser in 1996 founded the Hollywood Stock Exchange, which trades movie futures as a game, not for real money. Burns became vice chairman of Lionsgate in 2000, and HSX was sold to Cantor Exchange parent Cantor Fitzgerald a year later.
Thursday's hearing was held by the Subcommittee on General Farm Commodities and Risk Management, which oversees the CFTC.
Robert Swagger, chairman and CEO of Media Derivatives, complained that the MPAA was late in bringing up concerns, saying, "More than four months after the close of the comment period for the DCM application, the MPAA and several other entertainment industry associations filed ... objections."
Swagger said the thinking that movie futures would tarnish the industry because it would be seen as a form of "legalized gambling" is incorrect.
"Nothing could be farther from the truth, and MDEX has no interest in disparaging the reputation and integrity of Hollywood," he said. "The notion that a regulated futures contract tarnishes an industry and is tantamount to legalized gambling is not only outdated but parochial and baseless."
Jaycobs and Swagger said that a futures market would provide a way for the movie business to hedge their investments.
"The availability of risk management contracts can provide a level of confidence and free-up financing capacity," Swagger said.
Among those disagreeing at the hearing were interim MPAA chief Bob Pisano and IATSE international representative Scott Harbinson, who also spoke for the DGA.
"We strongly oppose approval of these proposed contracts," Pisano said, "because they are nothing more than gambling contracts that lack any of the characteristics of legitimate futures contracts, fail to serve any public interest and will harm all parts of the motion picture industry."
He said futures markets would not be a reliable indicator of boxoffice numbers because "trying to forecast boxoffice numbers prior to a motion picture's release without the benefit of the nonpublic information that is closely held by studios ... is arbitrary."
Pisano said such a market would encourage piracy by those trying to get an early look at a movie and that, in any case, no one who makes movies would go "short" because it would violate their contracts with talent and business partners and damage their reputation.
Harbinson said the whole premise of movie futures trading is false.
"I fear that the misperception that there is easy money to be made in Hollywood is what we are addressing today," he said. "This new risk would not be generated by the people who spent years and invested millions making the film; rather it would be generated by those who are likely to have no real stake in seeing the film succeed. ... Their goal is to make money for themselves."
Should the CFTC fail to act, Harbinson and Pisano called on Congress to get involved, a reference to action Wednesday in the Senate in which an amendment that would stop boxoffice futures trading was added to a major Wall Street reform bill.
Also on Thursday, five Senators, including Barbara Boxer and Dianne Feinstein of California and Al Franken of Minnesota, wrote a letter asking the CFTC to withhold approval of movie futures trading at a time when Congress is considering banning all derivatives. The letter said Hollywood reps claim "these contracts would increase their exposure by imposing new legal liability" and not be a hedge that would "allow them to control their risk exposure."
Although the CFTC has approved creation of the two exchanges, the next battle will be over approval of the products to be sold -- a contract that expires before a movie opens in the case of Media Derivatives and one that runs until a month after release for Cantor.
Congressional concern was implied in a comment by Rep. Kurt Schrader, D-Ore., a member of the House subcommittee, who called movie futures "sheer folly" in the aftermath of the derivatives crisis.
The CFTC now has until June 7 to decide on whether to approve the first product from Media Derivatives. In the meantime, the Senate bill prohibiting movie futures trading still faces a full Senate vote and then must pass the House, and both must be reconciled, a process that could take weeks or months to play out.