Celebrating the Oscars

The largest movie studios, fearing movie futures would allow Wall Street gamblers to affect a film’s performance at the box office, strongly opposed them. They worried that the markets would identify big flops before they hit the theaters. Would-be moviegoers, relying on the “review” provided by a weak market for movie futures, would stay home.

Proponents argued that movie futures would help the industry. Movie futures would attract new money into the film industry. They would offer would-be investors a way of sharing the risk that is inherent in filmmaking. Struggling filmmakers would have a greater chance of getting their movies funded.

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The MPAA, which represents the six major U.S. motion picture studios, first made their case before the Commodity Futures Trading Commission in 2010, when the CFTC was considering whether to allow movie futures. The MPAA’s arguments failed to win the day. The CFTC gave movie futures the green light.

Before movie futures could begin trading, the MPAA put its Washington muscle to work in Congress, and succeeded. Congress included a ban in the Dodd-Frank Act, which became law in July of 2010. Senator Dodd, his namesake bill complete, left the Senate and took over as head of the MPAA.

This movie futures ban extended an existing ban on onion futures enacted in 1958. The law prohibits contracts to sell onions for an agreed upon price at some date in the future, a normal practice for other agricultural commodities.

How did onions and movies end up in the penalty box together? The answer is not based on their unique characteristics, but on the fact that each industry had effective champions (lobbyists) that opposed futures contracts. The original ban on onion futures was a response to onion producers’ concerns that speculation in the futures market was creating unacceptable fluctuations in the price of onions.

Economists Richard S. Higgins and Randall G. Holcombe studied the onion market in 1980. They found the ban on futures contracts had actually destabilized onion prices and harmed small producers. Higgins and Holcombe explained that small onion producers typically sold their crop to large producers, who had the facilities and risk-tolerance necessary to store onions for later sale. The futures market provided both price information and an alternative means for small onion farmers to sell their crop.

Just as the large onion producers bought onions from their smaller counterparts, the MPAA studios often play a role in financing, producing, and distributing independent films. The MPAA, like the large onion producers that paved the way, may have championed a ban in order to retain control over the film industry.  If that is the case, independent filmmakers and movie fans will be harmed by the ban. 

Movie futures could open the world of film financing to more investors. This year’s independent film successes remind us why it is important to allow creative minds to work. We want independent filmmakers to be able to think about the content of their films, not about how to finance them. Movie futures would help them to do that, but instead, we may find ourselves yawning at the next round of superheroes and sequels.

Hester Peirce is a senior research fellow at the Mercatus Center at George Mason University.