* 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
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
and News Corp's 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)