Tuesday, May 4, 2010

SF News: Film Futures

In mid-April the Commodities Future Trading Commission approved the bill that would allow the trading of film futures on the stock market.  The argument for this is that it will allow producers access to a larger pool of money to help make films.  Given the higher and higher cost of making the average film, every little bot could help, but the biggest issue here is that of the danger to investors themselves.

By and large, investors are mostly ill-educated on the dangers inherent in the futures market, which is byzantine and difficult to understand even for some professionals.  The idea of any futures market is basically the same as gambling at the race track or betting on a sporting event: you put money into what is basically a bet on whether or not the commodity is going to increase or decrease in value over a certain period of time.  With movies, these futures would likely include cost over-runs and projected box-office sales.

Why is this dangerous?  Two words: Warren Buffet.  Actually, I am being perfectly serious when I say that.  Buffet espouses a theory that you should invest in companies that you know and products that you use.  While this is great for regular stocks, it can be disastrous in a Film Futures Market.  People will invest in things based solely on their knowledge of the product will be basing their investments on their personal tastes, which will cause high investment in films that are likely to be bombs (or in many cases simply bad movies).

What can we do about this?  Aside from asking our investment professionals NOT to invest in film futures, nit very much.  When a whole bunch of people lose their shirts on A Nightmare on Elm Street 2 or Iron Man 3 and demand that the government step in, though, we will need to step up and say "Caveat emptor... with extreme prejudice!"

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