There’s no business like show business in terms of the risk movie investors run. But a new futures contract could provide ways to mitigate part of the risk, reports Michael Halls.
How big a blockbuster will a blockbuster be? Most of the
time, that’s probably not a question that bothers
anyone but movie buffs and those working in the film
But it was a question that intrigued the new product
developers at Cantor Exchange and in particular its chief,
Richard Jaycobs. In March 2008 the exchange considered
developing a very unusual future — a contract based on
the box office receipts from movies.
By December Cantor had a product ready to use and applied
for approval from the Commodity Futures Trading Commission.
After much delay, Cantor Exchange expects to get this approval
in the coming weeks.
The product on offer is essentially simple. Investors can
buy or sell how profitable they expect a film to be —
measured by gross revenues at the box office in the first four
weeks after release.
Moreover, the contracts offer an interesting business model.
They should attract professional investors, such as the
specialist film funds, which are typically hedge funds
investing in one particular studio or film which could use
futures either to increase their bets or hedge them. But the
futures may also appeal to the many retail investors in the US
who take an interest in such things.
The practicalities of the contract are straightforward. The
box office futures go live six months before the release date
of the film and continue trading until four weeks after
An opening price for the contract is agreed at an eBay-like
auction before it goes live."Typically people start to get
interested in upcoming films around six months before their
launch," says Jaycobs. "We see that, for example, in the
blogosphere and the movie gossip that goes round about films.
So, at the moment people are interested in what may be launched
around Christmas but are not particularly bothered about next
The length of the four week period when box office receipt
figures are collected was chosen because typically in the US
and Canada — where the receipts data is published
— around 85% of gross revenues from ticket sales occur
during this period. About 40% of revenues come in the first
week of a new movie release, when (naturally enough) the price
action can be volatile to the extreme.
"Around the end of the four week period volatility has
quietened down and it’s time to make settlement,"
says Jaycobs. "There’s little point in delaying
The sales data is collected and published by established
market firms such as Nielsen EDI and Rentrak and figures are
also available through websites such as boxofficemojo.com.
Hollywood regards the US and Canada as one
'domestic’ market and the data for the two is
The contract price is one millionth of the final revenue
figure. So if a film is expected to gross a revenue of $100m,
the contract price would be $100.
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