THE ONION FIELD:

Trading in Fantasy (FELIX SALMON, 5/11/10, NY TImes)

Yet as Lionsgate Films, one of the few studios supporting the market, has recognized, a futures contract on box office receipts would be great news for the industry. For one thing, if the market got big enough, it would allow studios to easily hedge their investments in movies just by entering into a simple derivatives transaction. Studios could essentially sell contracts on their movies’ grosses into the open market, and pocket the proceeds. They would lose money on the contract if the movie does well, but in that case they’d make enough money on the movie itself to cover their derivatives losses.

That kind of thing would be a lot easier, and a lot cheaper, than the studios’ current methods of trying to hedge exposure and sell risk: the financing arrangements behind a typical Hollywood movie, with countless co-producers and incomprehensible accounting, make the average collateralized debt obligation look simple and transparent.

And even if the studios didn’t participate in the market, they would still benefit. People care much more about things they bet on, and the fake-money version of these contracts — the online Hollywood Stock Exchange, in operation since 1996 — has done wonders for increasing awareness of coming films among its users, without a single dollar of publicity and marketing money being spent.

What’s more, the contracts for the proposed market would be based on the first four weeks of box-office results, not just the opening weekend. A lot of people, of course, would be betting on that opening-weekend number, which is more a function of hype than a movie’s long-term chances of success. Just as many, however, would wait until the movie comes out, watch it on its opening weekend, make their own qualitative determination of how well it will continue to perform over the rest of the month and then place their bets accordingly.