Futures Trading: Could Hedging Kill the Film Industry?

Everyone has been hit hard by the economic crisis; businesses are going under right and left, houses stand empty for months with for sale signs marking the front landscape, and the stock market has seen better days. Many entities are hedging their bets and minimizing risk with futures trading (i.e. the buying and selling of contracts in which the only variable is the price).

The latest industry to be affected by futures trading is none other than the film industry. What this would mean is that traders could bet in advance on how well a film would do at the box office, which could drastically affect Hollywood, as well as the cinemas themselves.

So far, the Commodity Futures Trading Commission (CFTC) has passed a vote to open a market for traders to make financial bets on the overall ticket sales of a given film. This decision does not mean that any specific contracts have been bought or sold yet, merely that the application to create an open market has been approved. It is yet to be decided if the CFTC will allow the market to be opened to retail investors as well (this could include movie merchandisers and the like). The film industry faces the alarming risk of becoming an industry in which success or failure is determined by investors and speculators, rather than by the public's opinion of the artistic quality of the work.

There is implicit risk in this decision right at the outset because an investor whose money is tied up in the outcome of a film's financial take would have incentive to see certain films fail. The ultimate worst case scenario would be that some film studios and / or cinemas could go under, and consequently, could significantly reduce the number of movies made each year.

"I think they pose some risk to what trading could take place. I'm worried about manipulation." Bart Chilton, a commissioner with the CFTC said of the prospect of movies futures, in an interview on Bloomberg Television.

Though Chilton stated that the Motion Picture Association (MPAA) and its affiliates were opposed to movies futures, he does see a conflict of interest in possible futures contracts.

"...I could see possibly merchandisers of a Shrek toy for example might wanna hedge their risks; maybe the cinemas would wanna hedge their risks..." Chilton said.

Film lovers and industry professionals will likely be keeping a closer eye on the stock market than ever before as individual futures contracts begin to emerge.

Sources: InfinityTrading.com - all general knowledge of futures trading.

Boston.com - article by Todd Shields, posted April 18, 2010 providing information on the decision of the CFTC.

MaxKeiser.com - YouTube interview with Bart Chilton on Bloomberg Television; posted April 18, 2010.