Wish You Invested in the Success of Avatar? Now You Can with Movie Futures Investing

by Darwin on April 13, 2010

Have you ever just known a much-vaunted movie was going to be a stinker?  Or you picked a gem that turned out to be a huge hit?  Well, now you get a chance to be an industry executive and profit from your wisdom.  In a similar vein to yesterday’s post on How to Invest in Facebook and Twitter even though they’re not publicly traded, I came across an interesting business plan that will allow you to invest in the future success of movie releases.  There are a couple companies vying for this piece of the action, but the most proximal decision from the Commodities Futures Trading Commission will come on April 20 in regards to Cantor Fitzgerald’s “Domestic Box Office Receipts Futures Contract”. Each $1 million change in box-office revenue will increase a contract by $1.

Imagine if you got in on Avatar early, right?

Apparently, film industry execs aren’t pleased with the service because, in my opinion, they don’t want the horrid market performance of their duds to get out before suckers fork over the money to see them.  Think about how many horrendous movies we’ve all been to (especially those with young kids) because of a great trailer and heavy promotion.  Sometimes the best critics get it wrong too.  Next thing you know, you’re watching Mission Impossible 2 while your wife’s staring at you shaking her head – for the entire movie!  The market may be a better arbiter of future success than individuals.

As long as these futures exchanges are facilitated well and there’s enough volume and liquidity to keep the spreads to a minimum, I love the idea.  For some time, I’d been participating in the InTrade Futures world events; I’d previously bet against US/Israel bombing Iran’s nuclear facility, I didn’t think we’d find Bin Laden (not that I wouldn’t love to be wrong) and I’d bet against earthquakes.  Pretty interesting stuff you can hedge against (“bet”), but Intrade isn’t governed by the same rules and I sometimes had issues with wide spreads.

And by the way, right now Sarah Palin is listed as having a 25% of getting the nod for Republican nominee in 2012.

Are you kidding!?!

If you like learning about unconventional investment opportunities like this, check out my category on Alternative Investments.

I’ll update on new developments in this Movie Futures Space, so Subscribe Free to stay up to date.

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April 19, 2010 at 9:17 am

{ 5 comments… read them below or add one }

1 Jesse April 13, 2010 at 1:01 pm

That’s pretty interesting and I will surely look more into it, but that means I’ll have to start paying attention to new releases 🙂 It seems like a more understandable investment platform than the stock market, if you have little business knowledge.

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2 Kate April 13, 2010 at 5:46 pm

This is an interesting idea, but something I would never invest in. It is amazing how the movie industry bombards the consumer with so many new releases a week. I remember when one movie would come out and stun the world like ET.

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3 Investor Junkie April 14, 2010 at 9:11 pm

You know we are in an investing bubble when you can now invest in movies.

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4 moviegeek23 April 19, 2010 at 2:34 pm

The stale argument keeps reappearing that these are dangerous products in light of the derivative contracts that were at the root of the recent financial meltdown.

Only one problem with that assertion. The contracts in question were OTC, unregulated products. The contracts being proposed by Trend Exchange will be exchange-traded, federally regulated, centrally-cleared instruments.

Now, there are dozens, if not hundreds, of web sites right now that offer box office prediction contests and/or promote analytical models and strategies for calculating box office performance.

The internet is like “word of mouth” on steroids. Once the movie release is announced, the public will quickly pass judgement on box office expectations. This happens right now in unregulated, purely speculative cyberspace.

The Trend Exchange proposes to bring this existing, unregulated speculation into a regulated exchange-based marketplace.

There are many parties that are at financial risk with the production and distribution of a movie. They’ve already estimated internally what the likely box office return needs to be for them to profit from the movie. These instruments can realistically be used to offset some of the risk as a movie expected to bring in 50 million may only bring in 20-30 million.

These new markets will provide them an option to offset their existing financial risk, which is what existing futures markets provide.

Futures trading is about managing risk through price discovery and risk transfer. It is about bringing standards, transparency and integrity to the management of economic risks that already exist.

[Reply]

5 Aury (Thunderdrake) May 24, 2010 at 10:45 pm

Movie futures? Haha. Nice! Imagine those who DID cash in on a movie’s success! I know How To Train Your Dragon did superb…

Hmm! I love the idea of alternative investments like this. Nice find!

[Reply]

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