Date Night, a comedy opening April 9 at a theater near you, offers blue-chip stars Tina Fey and Steve Carell in the tale of a married couple whose dinner plans go very, very wrong. It was directed by Shawn Levy, the guy responsible for both Night at the Museum movies. So how do you think it'll do at the box office? And would you care to make a little bet—er, investment—on that?
You can do that now, on the virtual Hollywood Stock Exchange (HSX.com), where last week traders using "H" dollars were guessing that Date Night would gross about $90 million in its first four weeks. But if the Trend Exchange—a proposed futures market for movie box-office receipts—gets off the ground, you'll be able to do it with real money.
Last week CEO Robert Swagger and other execs at the TrendEx were eagerly awaiting approval from the Commodities Futures Trading Commission. The TrendEx is a subsidiary of the Swagger-run Veriana Ventures, which is headquartered in Scottsdale, Arizona, but would operate the TrendEx out of an office at 190 S. LaSalle in Chicago. A decision had been scheduled for no later than April 2, but at the last minute Swagger and his team hit a bump: In a letter to the CFTC, a coalition of five major movie-industry trade associations—representing everyone from directors to theater owners—registered their opposition and asked the commission to put its decision on hold. This came on the heels of a letter from the Motion Picture Association of America that likened the proposed trading to "unbridled gambling" and worried that "the reputation and integrity" of the industry could be "tarnished."
It's hard to imagine how the movie industry's cutthroat rep might get any worse, but tying it to a new set of derivative products from the sector that brought us the global economic bust might just do the job. Still, Patrick Catania, a former Chicago Board of Trade executive vice president who's working on the TrendEx as a consultant, says not to fret: the stuff that got us into trouble was "unregulated, over-the-counter, handshake deals." TrendEx products will be regulated and "transparent," he says, cleared at the Minneapolis Grain Exchange and governed by the TrendEx's own set of rules, under the jurisdiction of the CFTC.
Far from damaging the industry, Catania maintains, the TrendEx would provide a vital tool many other industries already have: the ability to limit losses by trading options and contracts that'll pay off if the movie doesn't. Knowing they can buy this kind of "insurance," Catania says, will make potential movie backers more likely to invest. Swagger began work on the idea in 2007. Changes in the economy since then have only made the need for it more urgent, Catania argues. With the current credit crunch and no way to manage risk, he says, "even major producers and directors are having to go out of the country to find investors."
Swagger and company say their products are geared to professional traders and movie industry investors looking for a hedge, and not to the unsophisticated "retail" market (translation: you and me). The plan is to start off with two products. One is an option—a complicated, all-or-nothing bet on first-weekend sales. The other is a futures contract, where gains or losses would be determined by how closely a given bet comes to matching the actual opening-weekend box-office numbers. Trading would run for the four weeks leading up to opening weekend and close before it, and each million dollars in ticket sales would be represented by an option unit costing $50. Trades would have to be placed through a broker called a futures commodity merchant. The relatively steep pricing and broker requirement are supposed to help deter amateurs.
But there's still the fear of manipulation by insiders. What comes to mind is a Bialystock-and-Bloom-style scam, a la The Producers, with moviemakers betting against their own deliberately miserable flick. But they might also just take advantage of their insider knowledge about scheduling and marketing. The TrendEx folks say they'll prevent manipulation by collecting box-office data directly from an independent source, Rentrak Corporation, and requiring studios to put a firewall between anyone responsible for "compiling or computing" box-office revenues and those charged with hedging investments in the film. Exactly how the firewall could be ensured is unclear.