Blockbuster Movies—A New Investment Vehicle?


Blockbuster movies make money—lots of it. The box office totals for the summer of 2010, while not surpassing last year’s total of $4.19 billion, were $4.05 billion. Yes, the ongoing recession had an effect on ticket sales. Still, there was a lot of cha-chinging at movie theaters around the country.

Believe it or not, someone figured out a way to spread the box office wealth. According to an article in the April 28, 2010 Knowledge @ Wharton, an online business journal from the Wharton School at the University of Pennsylvania, the U.S. Commodity Futures Trading Commission (CFTC) approved a futures exchange that will match buyers and sellers of future movie receipts.  That means an investor can purchase a share of a particular movie’s future revenue stream. The exchange is sponsored by New York investment bank, Cantor Fitzgerald.

Not everyone is sold on the idea of an exchange based on a movie’s revenue. The Motion Picture Association of America (MPAA) and the Directors Guild of America oppose this exchange and a similar one developed by an Indiana based company called Media Derivatives. Many at the major studios feel that this would lead to insider trading and people betting against movies and using their influence to make sure that the film isn’t successful.  Of course, that is illegal, but that won’t stop some people with vendettas against those involved in the film. (See my blog entry of December 24, 2009, What Makes a Flop? )

While agricultural future exchanges, such as wheat, corn and pork bellies, are used as a way for both buyers and sellers to hedge their risk, the trouble comes when sellers have more information then buyers. In agricultural future exchanges, both buyer and seller have the same amount of information and the product is a commodity, meaning there is little differentiation of the product. That’s not the case with movies and movie studios. If a seller knows more than a buyer, for example, a movie studio knows that a certain movie won’t do well based on marketing tests, they will sell movies that will be box office duds, so as to get their money but not give any to investors. Since that is a concern, in April 2010 Senator Blanche Lincoln (D) from Arkansas and chairperson of the Senate Agriculture Committee that oversees commodity trading, sided with the studios and placed a ban on the exchange.

I don’t think that is the end of the story when it comes to financing movies. While blockbuster movies make money, they also cost money. So, something else will come along that allows people to invest in the movies.

Note: I am not endorsing any type of investment, nor am I soliciting for any financial or investment company.  The investments and companies mentioned in this blog entry are listed for informational purposes only.

Sources:
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2477

http://www.variety.com/article/VR1118023577.html?categoryid=1237&cs=1

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