New derivatives launching very shortly… bet on Avatar & others

By: ispeculatornew
Date posted: 03.12.2010 (5:00 am) | Write a Comment  (3 Comments)

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Chances are that you are one of those that contributed to Avatar grossing over $2 billions at the box office, the most ever for any movie. One of the reasons that such high profile productions are rare is that since they are so expensive, they represent a risky bet for movie producers. That task will soon become much easier as they will be able to easily share that risk with other investors.

This will probably change the way movies are produced and might encourage movie studios to gamble a lot more since the risk will be much diminished.

It already existed but…

It was already possible to bet on the box office revenues of certain large movies through InTrade, but it was not a “regulated” market and thus did not offer enough protection and liquidity for production companies to be able to count on it for a hedge. This exchange however, developed in part by Cantor Fitzgerald, will be regulated by the CFTC (Futures commission) and should be considered legitimate for most investors.

Just the beginning

You can also bet that some “easier to invest” derivatives such as ETF’s will eventually be launched so that you could own a portion of the box office recipes of your favourite movie in your retirement account. It will certainly make things very interesting to see how these will be used.

You can also imagine that some will be shorting specific films hoping to pick the next “Waterworld”.

Diversification

No doubt, this, like other asset classes, will provider diversification to investors as they will be able to take different bets such as the type of movie that will work out the best, bigger or smaller productions, specific actors or crew members. Then watching the Oscars on TV might become a lot more stressful!

Still many issues to look at

That being said, there are still many things to be considered. Many will have more knowledge about movies, how they were done, what promotion tactics and budgets will be used, etc. Will the SEC be cracking down on insider trading as it is for regular stocks? You would think so right?

Also, imagine having a part of the Avatar movie which becomes a major success. Would you be entitled to anything if a sequel is produced? Those are just a few of the many remaining questions. But that being said, I still do believe that this market will be a success and that it will bring change in the way Hollywood produces movies.

What about you? Would you invest? Do you think this can pick up some investors and become a liquid and functional market?

Read more about it here.

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3 Comments

  1. Comment by The Rat — March 15, 2010 @ 9:06 pm

    I was one of those who contributed to the Avatar craze, and enjoyed it in 3D. I knew it was going to be good because James Cameron was linked to it and he is all about quality.

    Personally, I would love to be able to invest on movies in some form of investment vehicle. As you mention, an ETF of some kind is not only amusing to think about but would be pretty interesting.

    I have a position in CGX.UN and I find its a great way to add diversification to my portfolio. Plus, I enjoy movies a lot so by going to some of the theaters, I’m investing in myself!

    Nice post.

  2. Comment by IS — March 26, 2010 @ 3:53 pm

    @ The Rat – I also loved it, and saw it twice. Would probably see it again now if I had the opportunity (time is very scarce right now!!!). Does CGX.UN move with movies in general in your opinion?

  3. Comment by The Rat — April 8, 2010 @ 6:51 am

    I think there is an element of CGX.UN moving with movies. If there were 30 Avatars in the run of a year, and movie-goers flocked to the theaters, I’m pretty sure it would have a positive impact.

    The great thing about CGX.UN is that they have a large percentage of market share in Canada and competition is not a huge concern as of now. CGX currently pays a distribution of about 6%.

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