The Commodities Future Trading Commission on Wednesday set a formal meeting to hear presentations on the trading of movie box office futures on May 19.
The commission will hear presentations from both Media Derivatives and Cantor Exchange, the two financial institutions that want to start the exchanges, and from the motion picture industry, which opposes the exchanges.
The agency will then accept comments on the presentations through May 26.
Also on Wednesday, the group of Hollywood organizations that have opposed the move — the Motion Picture Association of America, the Independent Film and Television Alliance, the Directors Guild of America and the International Alliance of Theatrical Stage Employees — filed a new objection to the Media Derivatives plan.
The group warned that the possibility of altering the exact number of theaters showing the film, marketing for a film and technical issues in reporting the accuracy of box office numbers leaves the contracts subject to easy manipulation.
In its formal notice of the hearing, the CFTC said it would focus on “whether box office receipts contracts are readily susceptible to manipulation”; “whether the box office data used to settle the contracts are acceptable and reliable”; and whether companies’ contracts “could be used for risk-management purposes.”
It also said it wanted to hear whether safeguards proposed as part of the contracts “would have an adverse effect on entities that might otherwise be able to use the contracts for risk management.”
The hearing was announced Wednesday, as the Senate continues to debate wide-ranging financial-reform legislation that includes a ban on the CFTC acting to approve the exchanges.
A final vote on that legislation could take place next week. After the vote, the Senate and House still have to work out differences in their separate reform packages and President Obama has to sign the final bill.
A group of congressmen have urged the CFTC not to act pending the congressional action.
Under current law, the CFTC has until June 8 to make a decision on Media Derivatives’ request and until June 28 to make a decision on Cantor’s.
In the Hollywood associations’ opposition to the Media Derivatives plan, the group warned that the possibility of altering the exact number of theaters showing the film, marketing for a film and technical issues in reporting the accuracy of box office numbers leaves the contracts subject to easy manipulation.
It questioned the use of Rentrak Theatrical data to assess box office figures, noting that some theaters don’t participate in Rentrak and Rentrak specifically warns that its figures “are not intended to be used in connection with research where the primary purpose is for making investment decisions.”
It also contended approving the contract isn’t in “the public interest” because federal law requires futures contracts “have legitimate economic uses beyond pure speculation” and because motion pictures aren’t commodities, but derive their value “from public reaction to a motion picture’s artistic or entertainment merit, which are subjective judgments and unpredictable rather than verifiable facts.”
It said the trading would serve “no legitimate purpose.”
It also disputed suggestions that the contracts could help companies who produce and finance films hedge their bets.
“The contracts are inherently flawed as a hedging vehicles because they provide no opportunity to hedge investment risk at the pre-production and production stages,” said the filing.
“Worse still, MDEX’s contracts would imperil the massive investments studios and independent producers have made by starting to trade at the very time when they could have the maximum potential harm to the reputation and public acceptance of a motion picture.”
“Selling a motion picture ‘short’ after production would invite damaging collateral consequences both for the particular film’s success and for the trader’s future relationships with financiaers, directors, actors, exhibitors and others.”
Finally, it argued that the contracts would “harm” the movie industry creating conflicts of interest, new burdens, potential for insider trading and possibly even the potential for increasing movie piracy in a bid to impact box office receipts.
Opposition to the Cantor Exchange plan is expected to be filed at a later date.
