Next trend in futures trading: Movies?
Two American companies,Veriana and Cantor, have announced plans to offer futures trading on the potential gross takings of Hollywood movies. However, they have faced strong opposition from the Motion Picture Association of America (MPAA) and several lawmakers from both side of the aisle. None of who seem to understand exactly how futures trading works, or the benefits it can bring to the industry.
Speculators, as Madsen Pirie wrote in Freedom 101, exist to help manage risk. "They offer people certainty and security now, in exchange for a higher return for themselves in the future", providing they make the right decisions. That is their function in the marketplace, and it is this very beneficial effect that Veriana and Cantor are showcasing.
However, cashing in on the theme of the moment, the MPAA, which represents the major film studios such as Universal and Paramount, and other groups, said that the new markets would "create a risk of rampant speculation and financial irresponsibility". There is something very disingenuous about the MPAA’s claims. Either the speculators are just online gamblers, like people who play roulette in online casinos. Or, they are analogous to the omnipotent bankers who apparently nearly destroyed the world. They can’t be both at the same time, and yet I am pretty sure they are neither.
The futures markets are very clearly not casinos, because it is with careful research and good timing that one can make money – not random luck. No matter how much careful research you conduct to find trends in roulette numbers, you cannot consistently predict where the ball will land. Moreover, the kind of ‘gambling’ that the MPAA say they are against is already allowed, on the Internet or in gambling shops. If we are free to go to a bookies to bet on who will be ‘Christmas Number 1’, then betting on box office receipts is no different. Crucially, these new futures exchanges will offer a regulated and transparent system in stark contrast to that found on the high street.
Nor, however, are the futures markets anything to do with the causes of the credit crunch. In much the same way that the government foolishly tried to clamp down on short-selling and hedge funds in the wake of the financial crisis, so the MPAA is seeking to capitalise on general resentment of all financial markets to push through their agenda, without focusing on specifics. The Futures Industry of America made this point quite forcefully in arguing on Veriana and Cantor’s behalf, by saying that ‘one of the lessons of the financial crisis is that the futures markets performed flawlessly’.
In all, the MPAA is acting in a manner that is not only misinformed, but also self-defeating. These companies are attempting to provide a useful service, but are being stalled by the very industry that could benefit from the risk-management they would provide.
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