It is not often that my economics and arts news feeds throw up the same story, but here’s one that definitely crosses the boundaries. As Mike Giberson at Knowledge Problem reports, the U.S. Commodity Futures Trading Commission (CFTC) has approved the establishment of a futures market in movie revenue. Derivatives traders will now be able to buy and sell futures based on opening weekend domestic box office receipts.
In Twitter Joe Hill described this as “betting on movie futures”, and to some extent he’s right because all futures trading is betting of a sort. However, the primary purpose of the market is to allow movie companies to hedge the risk of development by allowing them to take out insurance against a flop. They probably do so already, of course, but a futures market is, at least in theory, a better means of providing that insurance than approaching an insurance company, because the futures market is informed by the supposed wisdom of a whole crowd of investors.
What will be the effect of this? If they get it wrong it could be an awful mess, and let’s face it the recent track record of the derivatives industry is not exactly exemplary. If the market works, however, it may make studios more willing to take a punt on an experimental film, rather than always going for a safe bet. Or, of course, it may end up with Hollywood always producing the sort of movies that derivatives traders like. It will be interesting to see how it works, and whether the traders attempt to create ways of tapping Internet wisdom. If it does work, other forms of consumer entertainment could follow suit.