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Betting on the box office


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#1 Michael Collier

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Posted 23 February 2010 - 03:43 PM

I have been mulling this over for a good half hour and I am still not sure if its a good idea, my gut is telling me no:

Movie Box Office: Real betting is on the way


It seems like the last thing needed is to complicate things by adding another layer of financial sector involvement, especially in futures trading that (if I read correctly) won't be able to directly finance anything (other than the CEOs pockets in the form of fees). Its a derivative, so the swap has no basis in equity or actual value of the film itself. Its conjured up from thin air for people to wager on.

Its seeing stuff like this that makes me wonder, why, oh why will I be arrested if I host an underground poker tourney, and be charged with illegal gambling; but if it is labeled a "credit default swap", "future", "derivative" / any other wacky scheme traders come up with, its call capitalism? (not anti-capitalist, I do understand the inherent value of some futures trading, but really? Box Office futures? Seems a bit beyond the pale)

My fear in this (my specific fear, other than it seems to further the trend toward casino wall street culture) is that the marketing of a film now falls under SEC control, even if its not publicly funded. If a director shows a rough cut of a film to a friend and its amazing, beyond expectations, and he buys futures on it, would that be considered inside trading? It would seem that this 3d party entity (which a film maker could not opt out of being traded, I assume) would open the door to all kinds of liabilities and what not, even though the film makers itself did nothing to seek that kind of exposure. And what is the solution should it start causing problems? Box Office Flop Swaps?

and one last thing, every movie, no mater how grand and moving, has a shelf life. At some point its value drops to 0, or at least begins a steady decrease in value until it nears 0. Films do not grow in income/time once the decline starts. Avatar will never make more money this weekend than it did two months ago. It might see a boost when it hits DVD/BD and then start the trend downward again.

It may take longer for some films than others, but when you buy futures of lumber, coffee, oil etc you know it will be worth SOMETHING, and likely will trend upwards over time. In film its not a question of if but when the commodity is worthless (or at least the futures of that commodity becomes unsellable). That means every film that is traded on will leave someone holding the bag (the ones who thought weekend 3 would be just as great as WE2, but in reality it tanks and never recovers on the 3d week)


yeah after typing that out, I am no longer undecided in my opinion.

Edited by Michael Collier, 23 February 2010 - 03:46 PM.

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#2 John Brawley

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Posted 23 February 2010 - 04:53 PM

I've been playing an online stock market simulation game called "Hollywood Stock Exchange" www.hsx.com for some years. The same people are behind this idea to create a futures market based on box office.

With the HSX game, you are given 2 million virtual dollars and buy and sell stocks. The stocks delist after they hit 4 weeks of release in the US and it's delist price is determined by it's BO to that date.

You can also by bonds (in actors and directors).

I started playing, mainly because it's a great way to hear about films that have been green-lit, often way before they show up in other trade magazines and sources.

The funny thing is, HSX has proven to be an incredibly accurate predictor of box office. More accurate than any other predictor. The guy that runs HSX now makes his money from studios and the like SUBSCRIBING to his information services, which are derived principally from monitoring his own stock exchange. Studios have been able to measure the success (or not) of trailers for example and WOM as the films progress to and past initial release.

This new development is an interesting one. Essentially it's the same idea. The stock delists after 4 weeks and it's price is determined by it's BO to that point. The difference being you buy or sell options to OTHER players, essentially gambling on the what that figure will be.

I think your scenario about a director or his mate buying futures in his own film as insider trading isn't a worst case scenario. A director will likely ALWAYS think their film will secretly be a runaway success. So will his mate. How many would buy against their film ?

More likely a good form of insider trading would be a studio, with all the information it has at hand, test screening data, their previous experience and HSX data....realises that they have a turkey and options (or hedges ?) against it's own film. It can even ensure it's lack of success by reducing advertising, making a bad poster, reducing the number of screens etc.

What about an actor who positions against themselves and then *throws* the game by turning in a crappy performance.....

BTW, anyone that works in the film industry isn't allowed to operate an account....not that this would stop someone crafty enough to get around this.

If you think about how much money would be required to hedge against a film that was going to be a turkey its astronomical. Surely that kind of money running against a film would be easily detected. But i do think it's very very easily corrupted by smaller scale insider trading.

I think it's a bit of a stretch to argue this will somehow help the funding of films and somehow support the film industry generally. If you take it for what it is, gambling on the box office of films then if someone's idiotic to do then why not let them ?? There's nothing in this to help film production generally. And these kinds of markets always have winners....and losers....

jb
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#3 Paul Bruening

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Posted 23 February 2010 - 07:23 PM

This is a fascinating thread, fellas. Please, keep it coming.

Does this mean that I could take the low box-office potential movie that I'm currently making and make more money from it by it being a flop if I exaggerate the promotions and find a distributor with wringing hands and dollar signs in his eyes?

Max Bialystock, you madman. I love you!
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#4 Michael Collier

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Posted 23 February 2010 - 08:09 PM

I have no problem with the idea of putting bets on BO returns, it seems like that could be a good oddball bet that I would feel more confident in than betting on, say, the winner of the bachelor or any of the other crazy things Vegas takes bets on.

My problem is that its being classified and treated like a security. It doesn't seem appropriate. Move it to Vegas and I'm on board. Let the FGC and NGC regulate it, not the SEC. Let tourists and college groups play it, but don't give it an air of legitimacy for day trading.

Its like playing poker through the stock market. invest in "River card/best 5 combo futures".

Edited by Michael Collier, 23 February 2010 - 08:10 PM.

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#5 John Brawley

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Posted 23 February 2010 - 09:45 PM

Max Bialystock, you madman. I love you!



It certainly does ring through doesn't it...

one thing I would say though is that no one really knows what the public will embrace or not embrace..

I learned this playing the HSX game. At first i bought virtual shares in films I like the sound of, with directors or cast I liked. I nearly busted out. It's only once i started thinking about films that would succeed in the market that i turned my portfolio around...im now worth just over 100 million btw ;-)

This new exchange also has a practice game going now. I actually got to see a preview of a blockbuster recently weeks before it's release. I thought the film stank and so in the practice exchange went hard at what I thought was a very unlikely BO. Well, the film did well upon release, people flocked and even though it was a crappy film, it still had an audience.

So even when you think you have the inside running, it's still hard to predict ! There's no accounting for taste and if it was that easy, then hollywood would have worked out the perfect formula by now !

jb
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#6 Satsuki Murashige

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Posted 24 February 2010 - 02:38 AM

I see a big taxpayer bailout in Hollywood's near future.... Gordon Gecko has won.
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#7 Adrian Sierkowski

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Posted 24 February 2010 - 09:23 AM

I saw the article on this in the NY times briefly.. and I have to say, it seems a bit worrisome. If you want to bet on movies, why not just invest in the companies who make 'em! Something tells me this will end badly.
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#8 Brad Grimmett

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Posted 01 March 2010 - 07:21 PM

If you want to bet on movies, why not just invest in the companies who make 'em!

That's a much more watered down investment. Most of the companies that own studios and are traded make all kinds of other things as well. For example, Newscorp's stock may have gone up a bit when Avatar was a hit, and you could make a few bucks investing in Newscorp, but if you bet on Avatar alone you probably made a nice chunk of change. It's just a different investment.
I think the idea for the exchange is a good one. There is very little opportunity for insider trading in my opinion, and what little there is exists mainly on the short side. Studios have an idea of when a movie will flop much more often than they know it will be a hit. And they never really KNOW one way or the other anyway. No one does.
As we all know, people are gambling billions and trillions of dollars every day on all the different stock markets, often times with much less research available than the average person has about movies. So I'm all for it. Although I'm a bit bummed that anyone working in the business can't trade.
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