An Open Letter to Hollywood:
The goal of this letter is to explain in plain English the benefits to everyone in Hollywood from the proposed box-office futures exchange (the “Exchange”), and in particular to get various trade organizations to withdraw their shortsighted objection to it.
Let me first mention that I know a bit about this topic. I have helped raise billions of dollars of financing for the film industry over the last 29 years, including wave after wave of financing that has crashed on Hollywood’s shores only to recede back into the distance.
Right now, we are in a serious trough, with the last wave of financing from New Yorkequity and hedge funds long gone. We need to have a sustainable approach to raising vast amounts of financing, and the Exchange will do just that. I advocated this approach for exactly this reason in an article titled “Raising Film Financing by Betting the Box” that was published in the Entertainment Law Reporter in 2003, and I recently testified in favor of the Exchange before the House and the CFTC, so if nothing else, I have been consistent on the issue.
So let me state clearly the benefit of the Exchange for everyone in Hollywood: It will bring billions of dollars to the table, and it will be sustainable.
This new source of financing will benefit everyone, including studios, independents, talent and crew, so it stuns me that the very parties that would benefit the most from it are objecting to it. The reason that the Exchange will achieve this result is obvious: The Exchange creates a publicly traded, transparent market that allows investors to know the value of their investment by just opening the paper.
The vast amounts of capital available to publicly traded companies dwarfs the capital available to private companies. This approach eliminates the perceived
opaqueness (rightly or wrongly) of Hollywood accounting and leaves a spotlight on the glamour and thrill of “owning a piece” of a film. No audits. No litigation.
Film companies will benefit by using the Exchange to hedge film risk, since hedging on the Exchange has the identical economic effect as raising third-party equity for a film. Instead of raising billions of dollars with complex slate financing transactions, film companies could reach the same result efficiently (with no transaction costs) on the Exchange. Hedging risk permits more investment in any particular film, which benefits everyone, including the crew and talent.
If film companies need the actual cash to make the film, they need only take the concept of the Exchange one step further (as is my hope and expectation) and raise cash directly from investors in exchange for a return that is tied to a percentage of the box office results of their films, as a proxy for all other revenue streams. As with the Exchange, there would be a flood of capital available if investors could know the value of their investment by opening the paper, rather than waiting for months only to receive arcane accounting statements that they don’t understand.
