Last month I noted that Hollywood was fighting the establishment of a new movie derivative market, with an MPAA executive VP worrying about how such a market could tarnish "the reputation and integrity of our industry."
Well, Hollywood did indeed get a provision in the proposed financial reform bill to outlaw trading in securities based on motion picture box office receipts. The only other exception is for onion trading.
Felix Salmon writes that "the biggest losers [of this provision] will be the very film producers who lobbied for it."
[I]f the market got big enough, it would allow studios to easily hedge their investments in movies just by entering into a simple derivatives transaction. Studios could essentially sell contracts on their movies' grosses into the open market, and pocket the proceeds. * * * That kind of thing would be a lot easier, and a lot cheaper, than the studios' current methods of trying to hedge exposure and sell risk: the financing arrangements behind a typical Hollywood movie, with countless co-producers and incomprehensible accounting, make the average collateralized debt obligation look simple and transparent. * * *
So why is the MPAA lobbying for the provision? Salmon says
it is probably simply the age-old story of large, conservative institutions being averse to change. Top executives at the biggest studios may suspect that smaller and nimbler competitors would get more benefit out of such a market: it's easier to hedge a $10 million project than a $200 million one.
In other words, like a lot of the other regulation we're seeing, this is about established players opposed to innovation. After all, if you're a big, established business, the main thing you have to fear is the upstart whose new idea will put you out of business. So, for example, make it harder for small companies to raise capital or use new types of financial instruments.
My post last month suggested that Hollywood's traditional resentment of capitalists seemed to have something to do with the fight. But Salmon's explanation makes more sense. The film artists are just confused – they like innovators (e.g., Coppola's Tucker) and don't understand that it's the capitalists like Gordon Gekko who bring us innovation. Maybe they'll catch on that big entrenched companies lobbying for regulation would make better bad guys.
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