Think you're better than Hollywood at guessing whether an upcoming flick will be a box office bomb or a sleeper hit? You'd get a chance to put your money behind that under two proposals that movie studios are denouncing as legalized gambling.
The proposals the U.S. Commodity Futures Trading Commission are expected to rule on this month would let movie fans, industry executives and speculators bet on expected box office receipts. Investors profit if their predictions come true and lose if they don't.
These online trading forums would be similar to futures markets common for commodities such as corn, pork bellies, natural gas and silver. Although goods are rarely exchanged directly through such markets, they let buyers and sellers reduce risks by locking in prices months ahead of time.
Now, two companies want to bring that concept to Hollywood, a notoriously risky industry in which big-budget productions can go bust in a single weekend and independent movies can become unexpected hits. But the investors most likely to benefit from such an exchange — the six major Hollywood studios — have rallied against the proposals.
The organization, Trend Exchange from Veriana Ventures complained that so many people screen movies before they are released that it would be "virtually impossible" to prevent insider trading.
The backers of the proposals say they don't need studios' involvement to succeed, though that's akin to corn farmers staying out of the futures market for corn.
"The studios only represent a small part of the hedging community," said Rich Jaycobs, president of the proposed Cantor Exchange.
Russ Andersson, Veriana's director of risk management, said other players with large stakes in movies, such as directors, actors, financiers and theater owners, might have doubts about the box office potential of some projects and would be willing to take part.
Cantor Fitzgerald already runs the Hollywood Stock Exchange, a virtual market in which shares of celebrities and movies rise and fall with their popularity. But while that market trades on "Hollywood Dollars," those using Cantor Exchange would use real currency to bet on a movie's prospects.
If a movie doesn't do as well as expected, investors would at least be guaranteed revenue from those pre-sales, known as futures contracts.
If it does better, though, they wouldn't get to keep all the additional receipts. Speculators would get a share when they bet on risky movies that do unexpectedly well.
Cantor would allow trading accounts starting with just $50 in them, allowing most members of the public to participate. By contrast, Trend Exchange's higher minimums and stricter trading standards would prevent amateurs from taking part. Cantor would allow direct trading by investors through a Web site, while Trend Exchange would require brokers.
So all you movie buffs, is it not time for you to your money where your mouth us?