* First contract allowed is for “Takers,” opening Aug. 20
* Movie studios have fought proposals for movie futures
* Two of five CFTC commissioners voted against contract
* Financial reform bill would ban movie futures
By Christopher Doering and Roberta Rampton
WASHINGTON, June 14 (Reuters) - U.S. regulators on Monday approved a plan to allow Media Derivatives Inc to offer futures contracts tied to receipts of box office films, despite opposition from Hollywood studios.
“The Commission found that the contracts are based on commodities, are not readily susceptible to manipulation and serve an economic hedging purpose,” the futures regulator said in its split decision.
The decision will give Media Derivatives Inc the ability to offer contracts based on the opening weekend box office revenues for “Takers,” a Sony Corp (6758.T) bank-robber movie starring Matt Dillon and Paul Walker that opens in the United States on Aug. 20.
Movie futures have been fought by the Motion Picture Association of America, the trade group for large studios like Walt Disney Co (DIS.N) and News Corp’s (NWSA.O) Twentieth Century Fox. The group has said movie futures would amount to legalized gambling on the industry, hurting its reputation.
The CFTC approved in April separate requests by Media Derivatives Inc, a division of Veriana Networks, and Cantor Fitzgerald LP, allowing each firm to operate an exchange to trade options and futures, but delayed a decision on the movie futures contracts. [ID:nN20140912]
A separate CFTC decision on Cantor’s contract for “The Expendables” with Sylvester Stallone is slated by June 28.
Looming over the proposals is the broad financial regulatory reform bill being finalized by Congress. The derivatives portion of the legislation includes a ban on futures tied to box office receipts.
Two of five CFTC commissioners — Jill Sommers and Bart Chilton — gave a thumbs-down to the idea.
Chilton said he believes box office revenues — which he called “popcorn prediction markets” — would be at risk of manipulation, and do not fit the definition of a commodity.
“If we approve these types of things on the arguments posed in favor of them, we could be approving things like death pools or terrorism contracts, something Congress surely never intended,” Chilton said in a statement.
Media Derivatives Inc and Cantor Fitzgerald have worked aggressively to damp down fears of manipulation — such as exhibitors misreporting box office revenue or altering the number of theaters that show the movie. The exchanges say movie futures would increase transparency and improve the financial flexibility of the industry.
They argue futures could allow Hollywood studios to lessen the pain from a flop at the box office. Currently, studios often bring in partners to invest in their movies and minimize their risk. A futures market could give producers another measure of protection.
The exchanges say movie futures would increase transparency and improve the financial flexibility of the industry. Media Derivatives and Cantor would collect revenue by charging a commission from each trade.
The move to commoditize the movie industry comes as global box office receipts reached an all time high of nearly $30 billion last year, an increase of 7.6 percent from 2008.
A form of betting on the success and failure of box-office flicks has been around for more than a decade. In 1996, a website called The Hollywood Stock Exchange was started where participants could invest fake dollars on box office outcomes. A division of Cantor Fitzgerald bought the site in 2001. (Editing by Sofina Mirza-Reid)