Stephen Foley: Box-office bets will be a Hollywood horror story
Saturday 17 April 2010
US Outlook: From the producers of the credit crisis, a new horror movie: box office derivatives. Lawmakers are belatedly getting to grips with credit default swaps and all the other grotesqueries that morphed the financial markets from a capital allocation tool to a casino, but still the new ideas keep coming from the "greed is good" brigade.
Two derivatives firms have applied for permission to trade box office futures, which would allow betting on an opening weekend's takings. Say you heard Wall Street: Money Never Sleeps is going to be a bust? You could "sell, sell, sell".
The claimed benefits – that studios could defray the risk of a box office flop – are bogus. Studios can already join with other financing partners. And the whole of Hollywood has risen up against the idea.
Good thing, too. We saw what happened when mortgage lenders stopped caring whether borrowers paid the money back; imagine the dross that will be produced if studios didn't have to worry about turkeys. We could see stars betting against their own films or even negative feedback loops as falling future prices put people off watching certain films.
Happily, we are debating this now, instead in a decade when a Hollywood bubble bursts. There's a positive legacy of the credit crisis.
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