Forget the election odds, bet on the box office!

Not content with bringing the world economy almost to its knees the eagle-eyed if ethically challenged denizens of Wall Street have sized up yet another sure-fire money maker – betting on the box office.

Chicago-based Veriana Networks and Cantor Fitzgerald (who own Hollywood Stock Exchange where you can already use imaginary money to bet on movies) had their proposals to set up futures exchange trading in box office opening weekends approved in principle by the US Commodity Futures Trading Commission (CFTC).  The commission green lit the scheme despite opposition from the Directors Guild of America, the Motion Picture Association of America (MPPA) and prominent industry figures like Peter Gruber, CEO of Mandalay Pictures who views the possibility of hedge funds betting on a movie’s failure as a self-fulfilling prophecy: “The word will get out in three seconds, and the picture will be a complete catastrophe.”

The proposals have some way to go before they become reality however, as the CFTC has yet to approve the details and the US Senate has erected a further obstacle.  In a move which generated what must have been the first reports of the US Senate Agriculture Committee in film industry trade papers, Senators historically concerned with Pork Belly futures approved financial reform legislation that would bar exactly this sort of speculative trading, earning praise from industry bigwigs. Variety quoted MPAA CEO Bob Pisano as saying: “We believe these plans are based on a faulty understanding of the film business and could cause real financial harm to both the film industry and other Americans drawn in by an online gaming platform that could be easily manipulated.”   

All this comes as the old adage ‘if you want to make money in the film business don’t invest in a movie buy shares in a studio’ is being sorely tested.  News that development of the latest Bond Movie (picturesque working title ‘Bond 23’) has been halted because of uncertainty over MGM’s future is just one instance of a wider trend.  As attempts since last November to find a buyer for the poorly performing studio continue to falter, and carrying debt of $3.7billion, the historic home of the 007 franchise is suffering from an industry wide anxiety about future revenues combined with depressed prices for back catalogue, despite having the largest library in Hollywood.  Reversing the long established trend that profit comes down the road from DVD sales and other ancillary revenues, studios and stock market analysts are reverting to focusing on theatrical receipts, bolstered by the (currently) unique to cinemas revenue booster of 3D.

Minimajor Lionsgate is fighting off what it sees as an inadequate take-over bid while Disney is trying to get $800 million for Miramax which observers view as optimistic given the former Weinstein powerhouse may no longer have the rights to many of its most successful titles.  (Current offers are reported in the region of $400-500m.)  In an echo of short selling in February Viacom bought back control of the Dreamworks library for $400m – less than half of what it sold it for four years ago

Yet despite Hollywood studios cutting production and laying off staff in droves, parent companies such as Time Warner and News Corporation are reporting very healthy profits and some suggest that scaling back, particularly in the speciality divisions, on the people who are in effect the R&D arm of their creative content empires may yet prove to be a false economy. 

On the other hand, just as in the 1970s, this may turn out to be a golden opportunity for the next generation of Weinsteins (who are reported to be trying to buy back the Miramax label) if they can produce or acquire and sell on independent movies which the studios will need to maintain their distribution slates.   

For the time being you wont be able to bet on the outcome but if the financial vultures eventually get their way then spread betters and hedge fund aficionados  may soon get something else to lose their shirts on.

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