The Commodities Future Trading Commission is putting off for up to a week any decision on the trading of movie box-office futures.
The deadline was Monday for the commission to act on a request from Media Derivatives for trading — one of two the commission is considering — but the CFTC sought and Media Derivatives agreed to the delay.
It was not immediately clear why the delay was sought. Requests for explanation by TheWrap to Media Derivatives and the CFTC have been declined.
Technically, Media Derivatives had to ask for the delay, but the request apparently originated with the CFTC.
Besides keeping up the suspense for the movie industry, the delay gives Congress more time to enact financial reform legislation that could block the CFTC from ever approving the request.
The far-reaching reform legislation recently passed by the Senate includes a ban on the CFTC approving any future movies trading. That ban would go into effect once the overall bill is reconciled with the House’s financial reform package and signed by President Obama.
The reconciliation isn’t expected to happen for several weeks, but when the legislation becomes law it would stop any further approvals by the CFTC.
Media Derivatives and Cantor Fitzgerald are each seeking to trade futures based on box office numbers. The deadline for the commission to act on Cantor’s request is June 28.
While both companies are seeking to trade movie box-office futures, they are proposing very different plans for the trading.
Media Derivatives' proposal is to trade both options and futures contracts based on the first full weekend gross of movies in more than 600 screens. Trading would start a month before a movie is slated to come out. It is aimed more towards professional traders.
Cantor’s proposal is to trade futures contract alone — not options — based on box office revenues in the first four weeks. Trading would generally start six months before a movie was due to come out.
Cantor is aiming more at retail customers, with contracts starting as low as $50 each representing a one millionth of box office revenues.
Most of the official movie industry — the Motion Picture Association of America, the Independent Film and Television Alliance, the Directors Guild of America, the National Association of Theatre Owners and IATSE — strongly oppose the trading.
Representatives told congressional committees and the CFTC that the contracts amounted to legalized gambling, could never be used as economic hedges as proponents claimed and could damage the industry. They also argued that box office numbers were subject to manipulation and aren’t commodities in the sense corn or soybeans are commodities.
One of the few Hollywood supporters of the trading has been Lionsgate vice chairman Michael Burns, who put together deals to finance the films and told the commission the trading could in fact be used to hedge investments.
In last-minute filings, some additional present or former Hollywood execs also supported the trading — as did some companies who do tie-ins with movies, undercutting some of the Hollywood arguments.
“We often invest in film tie ins such as 'Iron Man 2,'” wrote Zia Zaman, chief strategy officer, North America for LG. “Since we invest a great deal in specific feature films many months before a film’s release, it would be beneficial to us to be able to hedge by buying a ‘short’ contract based on domestic films release.”
David Molner, a Paramount Pictures exec from 1995 to 2000, said the contracts could be used to hedge and aren’t subject to manipulation.
“If it were as commonplace today to trade box office futures as to trade grain prices, every studio would participate,” he wrote. “Don’t let move distribution incumbents stiffly innovations in financial services.”
