Why Movie Futures Trading Is a Bad Idea

Creatively it devalues art, while on the business side it increases the possibility of market manipulation

One of the most pressing issues facing Hollywood right now is the idea of movie futures trading, the idea of treating films as commodities.

The Merriam-Webster dictionary says a commodity is “a mass-produced unspecialized product” — the same no matter who produces it, such as a barrel of oil, a bushel of wheat or a gallon of orange juice.

On the federal level, the Commodity Futures Trading Commission is the regulatory authority that oversees markets for commodities. It is the CFTC that, via a 3-2 vote, recently approved the creation of a commodities market for movies.

On the creative side, if you’re a writer, actor or director, are you comfortable with your work being treated as a commodity? Do you believe your vision should be considered equivalent to a barrel of oil?

During awards season, it’s common to discuss the difficulties of comparing works of art. We ask how we can value the relative merits of an indie drama vs. a period piece vs. a biopic. One way is to classify all films as commodities and trade them as if they were nothing more than financial derivative instruments. Are we comfortable with the idea that, for example, the life story of Harvey Milk is a commodity to be traded on an exchange?

Think about the precedent that's about to be established here, not just for film but for all works of art. If we say that it’s acceptable to treat films as commodities, why not treat music the same way? If works of art have no unique artistic merits, if they’re all generic commodities, why not establish a commodities market for paintings and sculptures? These are dehumanizing ideas, to say the least.

And it’s not just theory and conjecture: The CFTC has approved a market for treating films as commodities. If we sit back and let this go forward, what’s next?

On the business side, the primary argument in favor of movie futures trading is that it will decrease risk. What if risk increases due to manipulation by industry insiders — or industry outsiders?

Industry insiders will have a strong financial incentive to manipulate the new system by selling confidential information. A studio employee and her boyfriend recently were arrested for attempting to sell secrets to investors. They tried to sell the information, but there was no market for it; now we’re going to create a market for it, where insider information will be worth its weight in gold? In this case, the two of them got caught, but how would we ever know about others?

Suppose someone gets away with selling insider information and this results in widespread shorting, where the buyers of the information publicly bet money that the film will not meet expectations. It is widely reported that many people are holding short positions, so the film dies on opening weekend. The seller got paid for the information and the buyer(s) profited by shorting, everybody wins … except for the writers, actors and director. Their financial futures are tied to back-end deals, to percentages of a film’s profits, and so they take a massive hit.

Insofar as catching the bad guys goes, if someone makes a fortune by shorting a movie, how would we ever know if they’d illegally purchased insider information or if they’re just lucky? Suppose that we do find the seller of the illegal information — that person will face the consequences, but the damage will be done. The millions in lost box office revenue aren’t going to magically reappear; we will not be able to unring the bell and many in Hollywood will suffer because of it.

Industry outsiders will have a strong financial incentive to manipulate the new system by planting rumors. Someone plants an anonymous rumor, perhaps accompanied by some “proof,” saying that a studio is holding a short position, thus betting against its own film. Of course the studio can’t do it out in the open, the rumor goes, they’re using third parties to take short positions on the film as a way to manage downside risk on a looming disaster. The rumor, which has no basis in fact, spreads like wildfire through various social and financial networks. Many investors take short positions on the film and thus create a self-fulfilling prophecy, providing legitimacy to the idea that the film is indeed a looming disaster. As with the aforementioned industry insider manipulation, the film dies and the fortunes of the writers, actors and director go with it.

And what about attracting new investment to Hollywood? Consider those investors who provide funds early in the game, at the pre-production stage. You know the project will take months or years before it ever gets close to a theater, and now someone tells you that an unpredictable derivatives market will come into effect just days before your film opens? Would you invest critical millions early in the life of an unproduced project when you know that things could go south at the last minute?

Movie futures trading is a bad idea on the creative side since it devalues and dehumanizes art, treating films as mere commodities. Movie futures trading is a bad idea on the business side since it will increase risk as a result of manipulation, by insiders and outsiders, without the reward of attracting new investment.

Trading movies as commodities is opposed by creators (DGA), distributors (MPAA) and exhibitors (NATO) and it must not be allowed to happen — our futures depend on it.