A Week After Feds Approve Movie Derivatives Market, Congress Bans It

from the so-much-for-that dept

Fri, Jun 25th 2010 4:59pm — Mike Masnick

Over the last few years, a few companies have been trying to set up financial markets for buying and selling movie derivatives. Effectively, it was a way to financially bet on the performance of certain movies -- whether long or short. There are all sorts of markets like this, and it's difficult to come up with any reason not to allow them -- but, of course, the MPAA cobbled together a bunch of complaints, including the idea that this would encourage more file sharing, as short sellers attempted to undermine the performance of a movie. So, it seemed like good news last week when regulators from the Commodity Futures Trading Commission voted to approve one of these operations, the Trend Exchange, from Veriana.

But it appears that victory was very short-lived, as Congress banned such offerings in the middle of the night last night. Basically, the MPAA was able to shove this issue into the Wall Street Reform bill which has widespread support, and politicians who didn't want to hold it up any more refused to take that provision out (which would have involved a fight).

Apparently Hollywood is so afraid of free markets that it has to oppose them every chance it gets.

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Filed Under: congress, derivatives, markets, movies, trading

35 Comments

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Andrew F (profile), 25 Jun 2010 @ 4:57pm

They've killed off a potential business model too!
Make a crappy movie.
Short it.
Profit!!!
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Eugene (profile), 25 Jun 2010 @ 5:06pm

Re: They've killed off a potential business model too!
Hey! That's the premise of "The Producers" wasn't it?
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Anonymous Coward, 25 Jun 2010 @ 5:14pm

Now why would Hollywood be against this? I don't buy the file sharing argument, what's their true motive?
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Suzanne Lainson (profile), 25 Jun 2010 @ 5:18pm

Re: They've killed off a potential business model too!
I've been concerned that it would be way too easy to game this. Given the abuses we've seen on some other financial markets, this one seems questionable.
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out_of_the_blue, 25 Jun 2010 @ 5:57pm

Derivatives are *not* a free market.
Remember TARP? That was bailing out *derivatives* markets, not sub-prime loans. $700B would have paid off *every* sub-prime loan. Instead, that went to WALL STREET gamblers, fascists who keep profits private, and losses are paid by the public.
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Anonymous Coward, 25 Jun 2010 @ 6:01pm

Re: Derivatives are *not* a free market.
That is some powerful truth you're speaking there
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Suzanne Lainson (profile), 25 Jun 2010 @ 6:02pm

Re: Derivatives are *not* a free market.
Derivatives have extended far beyond managing risk. I, too, see most of them as Wall Street toys.
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Anonymous Coward, 25 Jun 2010 @ 6:05pm

Re:
If they had to compete for funds based on quality, they would be forced to write a decent script? Just a guess
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Anonymous Coward, 25 Jun 2010 @ 6:36pm

It never ceases to amaze me how fast congress listens to industry lobbyists the moment they demand something yet when groups like the general public, Public Knowledge, EFF, etc... ask Congress to do something in the public interest (ie: reduce the 95 year copyright length) Congress merely ignores us and never does anything. Congress only acts fast when giant corporations demand something, but when the public demands something in the public interest congress does absolutely nothing.
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Suzanne Lainson (profile), 25 Jun 2010 @ 6:59pm

Re:
Congress only acts fast when giant corporations demand something, but when the public demands something in the public interest congress does absolutely nothing.

In this particular case, though, I think there has been very little support FOR this. Other than the companies wanting to offer these derivatives, I don't think anyone else has asked for them. I think it's more likely to be perceived by the public as a scam, so Congress probably comes out looking pretty good here.
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Anonymous Coward, 25 Jun 2010 @ 8:22pm

I'd think insider trading would be the bigger worry for this sort of thing...
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Anonymous Coward, 25 Jun 2010 @ 8:42pm

Re: Re:
ding! winner. derivatives are the true poison of the financial system, certainly not desirable. i dont think the movie people had to say much, because congress is not wanting to be seen supporting this sort of financial witchcraft.
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Jay (profile), 25 Jun 2010 @ 10:03pm

Yeah, I'm siding with Congress on this one.

They may not get most of them right, but I don't see how this would be a good thing for anyone, especially given a history on derivatives.
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PrometheeFeu (profile), 25 Jun 2010 @ 10:23pm

This is just stupid.
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PrometheeFeu (profile), 25 Jun 2010 @ 10:23pm

Re: They've killed off a potential business model too!
That's insider trading and unless you make tens of millions of dollars and get out of the country immediately, it's not worth it.
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DaveZ, 25 Jun 2010 @ 11:51pm

Derivatives are stupid
Derivatives are an fanciful invention which allows legal traded companies, to take your money and theirs and "gamble" it. The whole point of the stock exchange is to give companies the ability to raise capital from the public. The public hopefully get a return on this. Its not gambling, its called investment. Derivatives on the other hand, dont produce anything, in fact they are a leech on the system draining money out of companies that produce goods and services to companies that effectively contribute nothing to the economy. They are exactly the same as the patent trolls that you all hate so much. In what possible manner could you justify their existance? Would you pay a professional gambler(day trader) money to go to the casino(market) and bet it for you?
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Frank Hirsch, 26 Jun 2010 @ 5:01am

Wow, Hollywood vs. Wall Street - that's essentially the premise for a blockbuster movie: "Frauds vs Con Artists," or something along those lines...
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Frank Hirsch, 26 Jun 2010 @ 5:16am

Or is it "Alien vs Predator"?
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WammerJammer (profile), 26 Jun 2010 @ 7:28am

Wow
Sounds like they are burying themselves in legislation. Better watch out or they will create cross-purpose legislation. Wow! The number of lawsuits and lobbying shows that the movie and record industry are doing very well and making big profits. But this is how they reward us for our patronage. They make big profits and then stop us from using the product.

I went to a movie for the first time in 10 years the other day (Toy Story 3). I had to eat the crap popcorn and drink the crap soda (lost 5 years off my life), had to take a piss and missed 15 minutes of the movie and by the time it was done my ass was so sore from the horrible seats that I could barely get up. Plus I had to pay for this wonderful experience of a night out. I would rather be enjoying the privacy and freedom of my own home and if they don't provide the movie when I want it I will find a way to get it.
Downloaded first run movies are usually crap because they have to use a movie camera to capture it. The normal person recording a movie in this manner has no lighting and most of the time someone get up and walks in front of the camera. My point is that the quality is so blurry that it gives me a headache watching it on an analog tv, and it is totally unwatchable on a digital one. Why waste the time downloading it? You know it is going to be crap.

What I DO like about downloading movies is I can watch part of it before I waste the money in the theater because you can't rely on the reviews. It's the same with Software, Video Games and Music. Why waste my money (I don't have) on a product with no refunds or returns. Once the package is opened you can't return Movies, Software, or Music any more. They just assume you copied it and you are not entitled to a refund. I say we have the right to try before we buy especially when there is no refund or return.

I have accumulated at least a hundred games that my kids thought were crap and they all wound up in the garage in the crap pile. How many VHS tapes do you still have clogging up your living space? Music was even worse. From reel-to-reel to 8 track to cassette to cd to dvd. After a few years of this I became pissed off at being ripped off and stopped having a conscience about ripping them back.
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Suzanne Lainson (profile), 26 Jun 2010 @ 9:19am

Re: Derivatives are stupid
They are exactly the same as the patent trolls that you all hate so much. In what possible manner could you justify their existance?

Also, placing bets on films based on box office results seems to reinforce traditional Hollywood style movie delivery where ticket sales are closely followed and used as a significant measure.
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Anonymous Coward, 26 Jun 2010 @ 9:37am

Bill stuffing is what is wrong with government
Arguments about derivatives aside, the stuffing of a bunch fo unrelated crap in a various Bills is what is wrong with our government. Why does it seem so easy to tack a bunch of crap onto a good Bill and still get that Bill passed? I don't think our politician even read the crap they sign. We need to separate out this stuff and flush the crap.
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Suzanne Lainson (profile), 26 Jun 2010 @ 10:07am

Re: Bill stuffing is what is wrong with government
We need to separate out this stuff and flush the crap.

Good luck with that.
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Anonymous Coward, 26 Jun 2010 @ 11:22am

Re: Re: Derivatives are stupid
They should use attendance numbers instead of a dollar amount to measure a movie's popularity.
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Suzanne Lainson (profile), 26 Jun 2010 @ 12:32pm

Re: Re: Re: Derivatives are stupid
They should use attendance numbers instead of a dollar amount to measure a movie's popularity.

Actually that would probably make a bigger mess of things. Then you could just blanket the country with free tickets to generate the numbers you want.

This article mentions some of the reasons why this financial market wouldn't reduce risk.

Hollywood Backs Ban on Box-Office Futures in Financial Overhaul - BusinessWeek: "Pisano told regulators, �The contracts provide no opportunity to hedge investment risks at the pre-production and production stages, when the real financial decisions are made and risks taken.�"
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Anonymous Coward, 26 Jun 2010 @ 6:40pm

The MPAA has a monopoly on this already. By allowing for a public market, their power would start to wane. The RIAA does the same thing with upcoming bands and records. This is the only, only, only, ONLY reason that they pushed to make it illegal.
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Mike Masnick (profile), 26 Jun 2010 @ 11:20pm

Re: Derivatives are *not* a free market.
Remember TARP? That was bailing out *derivatives* markets, not sub-prime loans. $700B would have paid off *every* sub-prime loan. Instead, that went to WALL STREET gamblers, fascists who keep profits private, and losses are paid by the public.

Don't make the mistake of assuming that because *some* derivatives were bad that all derivatives are bad.
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Mike Masnick (profile), 26 Jun 2010 @ 11:23pm

Re: Derivatives are stupid
Derivatives are an fanciful invention which allows legal traded companies, to take your money and theirs and "gamble" it. The whole point of the stock exchange is to give companies the ability to raise capital from the public. The public hopefully get a return on this. Its not gambling, its called investment.

Investment has always been a form of gambling. Pretending their different is a mistake.

Derivatives, by themselves, are not a bad thing.

Derivatives on the other hand, dont produce anything, in fact they are a leech on the system draining money out of companies that produce goods and services to companies that effectively contribute nothing to the economy.

It is true that *some* derivatives can cause problems, but damning all derivatives is an ignorant position.

Own a house? Have a mortgage? That's a derivative. Own a car? Have a lease? That's a derivative. Took out student loans? That's a derivative.

Don't knock "derivatives" as a class. They probably made it possible for you to do a lot of things in life you wouldn't have done otherwise.
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Anonymous Coward, 27 Jun 2010 @ 7:15am

Re: Derivatives are stupid
so its a given you do not knot how a Derivative works, you just "know" you don't like it cause that is what you where told...

Sad really so many people open on Copyright, yet give the talking points when its something the "media" says is bad...
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Anonymous Coward, 27 Jun 2010 @ 7:21am

Re: Re: Bill stuffing is what is wrong with government
Because if its "hard" to do its not worth doing?... Yet you wonder whats wrong...maybe i should buy you a mirror
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Andrew D. Todd, 27 Jun 2010 @ 7:27am

Futures and Risk Duration.
I am inclined to agree with Suzanne Lainson (Jun 26th, 2010 @ 12:32pm). For a derivative to be minimally sound, there have to be underlying assets. Even in gambling, the gambler has to put real money on the table. For a futures market, that means the ultimate producer and the consumer have to be on board, because they are the only ones in a position to give assurances that there will be a supply and a demand for the commodity in question. Otherwise, you will find that the gamblers are the kind who abscond when they lose, rather than paying their bets.

Corn futures work because there really is a corn farmer back there, and he really does have a corn farm, and he really has planted corn, so he can sell futures against the crop. The nature of corn farming is that the farmer spends money on land rent and "inputs" (seeds, fuel, fertilizer, insecticides, etc) in the beginning of the year, and harvests and delivers his crop to the grain elevator at the end of the year, and the crop is actually sold to the ultimate consumers over the course of the following year, say an average of eighteen months from the time of expenditure to the time of payment. That reflects nature's cycles of summer and winter. It is understandable that a corn farmer wants to "lay off" some of that risk.

Industrial and commercial processes tend not to work that slowly. They usually run at the rate of at least ten "turns" a year. Even the special case of shipping goods from China only takes a couple of weeks or a month. An industrialist who wants to reduce his risk exposure may try to speed up his process, sometimes by the addition of a durable capital good. There are already mechanisms in place to finance durable capital goods. You can mortgage them, or sell them to separate companies, and lease them back. The investment is tied to a definite piece of equipment. Let's say it is a numerically controlled machine tool. That machine can be used to make something or other, even if the original purchaser should go out of business, and lenders are willing to write mortgages, on the assumption that they can always sell the machine to someone else, to make something else.

For example, the movie industry has been pushing the theater owners to adopt a system of fully digital downloading and projection, a la YouTube, and there has been a certain amount of argument about who is to pay for the equipment. This expenditure is not tied to any particular movie, and a theater thus equipped could easily be used to show sporting events, or in fact, almost anything an auditorium of that size, without backstage facilities, is good for. There shouldn't be any problem about putting the digital projector onto the theater's mortgage, like any other building improvement, unless there are underlying issues about the theater itself.

The movie industry's performing talent is accustomed to being paid largely on a contingent basis, anyway, according to the box-office receipts or other revenues. The general direction of technological progress is to speed up movie-making, to make it easier to outsource selected production expenses to India, etc. If you carry technological progress to its ultimate limit, you have each actor working away at his own part in his own virtual reality nest, all of them in parallel, effectively making ten different short subjects, each ten minutes in length, at the same time. Think of it as being like the many different reporters in a newsroom, each working on his own story for the daily edition. Under those circumstances, it might be possible to make a feature movie in a week or less. All of these factors tend to diminish the financial risk in making a given movie. So the movie industry has no identifiable need to lay off risk.
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Anonymous Coward, 27 Jun 2010 @ 12:51pm

Re: Derivatives are stupid
...in fact they are a leech on the system draining money out of companies that produce goods and services to companies that effectively contribute nothing to the economy.

Sounds like the usual demographic techdirt shills for...
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Anonymous Coward, 27 Jun 2010 @ 3:42pm

Michael moore explains what derivatives are. He's being snarky of course but it's true.

http://rogerebert.suntimes.com/apps/pbcs.dll/article?AID=/20090927/PEOPLE/909279997
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Jay (profile), 27 Jun 2010 @ 8:43pm

Question
"Don't knock "derivatives" as a class. They probably made it possible for you to do a lot of things in life you wouldn't have done otherwise."

How exactly would these derivatives be a good thing for anyone involved?

It does seem like an unnecessary gambling that could either drive up the prices on movies or greatly harm the prices for nothing but short term monetary gain.
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nasch (profile), 28 Jun 2010 @ 9:52am

Re: Re: Re: Bill stuffing is what is wrong with government
No, because the only people able to do it (Congress) benefit from not doing it. Therefore it's not going to happen.
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Anonymous Coward, 28 Jun 2010 @ 2:04pm

Same way they sleazed through the online poker ban...
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