On Thursday, April 22nd, hearings were held on Capitol Hill concerning the proposed virtual box-office futures markets and how these may effect the American film industry. A panel
consisting of Richard Jaycobs of Cantor Fitzgerald (CF), Robert Swagger
of Media Derivatives, Inc. (MDI), Robert Pisano of the Motion Picture
Association of America (MPAA), Scott Harbinson representing both the
International Alliance of Theatrical Stage Employees (IATSE) and the
Directors Guild of America (DGA) and Prof. Schuyler Moore of UCLA.
Moore is the author of the 2003 book, “The Biz” and made the claim
before Congress that he was the originator of the concept of box office futures trading. However, as those who read my interview with Max Keiser may recall, Max claims that he invented the concept, as well as the technology which Cantor is using for this exchange. Keiser points to an 1996 interview he gave to CNN to verify his claim. Furthermore, his HSX website was also the subject of an article by the Village Voice in 1999.
Needless to say, Jaycobs, Swagger and Moore all testified to Congress that the new box office exchanges would be a benefit to Hollywood as a source for funding. Meanwhile, Pisano and Harbinson
argued that these exchanges would cause chaos and ruin the TV-Film
industry. Pisano told Congress, “This is nothing but synthetic
speculation that helped destroy the financial
industry.” Harbinson added, “it’s just gambling”, concurring that such
an exchange would harm entertainment similarly as the mortgage
industry. Swagger countered that only the six largest studios oppose
the new exchanges. Jaycobs points to a document
from Lionsgate studio that supports box office futures and claims that
smaller and independent studios would benefit. Pisano punched back that
over 150 small and independent studios have joined the MPAA in their
opposition. Interestingly enough, Keiser has recently obtained a video
which he claims shows a top executive for Lionsgate discussing insider
trading and their relationship with HSX/Cantor. Max will be airing the
video this week on his show at MaxKeiser.com.
Professor Moore attempted to conclude that the box office future exchange was merely a natural development. He pointed to the practice of ’slate financing’, a method of raising capital for producing films.
Moore told the House Agriculture Committee, which overseas the Commodity Futures Trading
Commission (CFTC), that such financing takes into account a wide range
of futures-type conditions, such as potential overseas and DVD sales,
when seeking funding for productions. However, as Max Keiser pointed on
in my interview with him, there is a high likelihood of insider trading
on such an exchange.
While CEO of HSX, Keiser was being asked to manipulate prices. In the 1999 Village Voice article, Max described that some of his fellow board members, who had outside interests with studios, were
manipulating prices and then reported those prices to NBC’s “Access
Hollywood” in order to impact opening weekend box office results.
Keiser resigned from HSX in protest over this, saying “My fellow board
members, who were not working in the interests of HSX share holders but
associates working at film studios, could not tell the difference
between marketing and market manipulation.” Pisano echoed this with the
MPAA’s concerns this past Thursday, that such speculation could torpedo
film projects even before they go into production.
The CFTC is poised to rule on Cantor’s and MDI’s exchanges soon, as early as this coming week. Critics believe that such exchanges have the potential to become ripe with fraud. Pisano pointed out that a box
office receipt is merely that, a receipt given to a consumer, who had
no stake in the film’s actual production. His calling the Cantor and
MDI products “synthetic speculation” refers to the Wall Street mortgage
securities of synthetic CDO. A normal Collateral Debt Obligation is
backed by a ‘tranche’ of actual mortgages held by a bank or financial institution, such as Fannie Mae or Freddie Mac. If a hedge fund takes out insurance in the form of a Credit
Default Swaps (CDS), the hedge fund is making a speculative bet that
the CDO will fail. Using the CDS itself as collateral for a CDO is
known as a ’synthetic CDO’. One can easily see how such products can
influence, and destroy a market. These are bets on a bet, plus they a
bets for a product to fail. Industry insiders could use such synthetic
products to attack a company and force a film production to be halted
even before it makes it to the big screen.
