Why the studios hate film futures
Studios are against futures because they get none of the financing benefits but are exposed to all of the risks, including decrease in marketing control, decrease in acquisition choices, increase in acquisition cost and exposure to potentially negative publicity.
A film futures exchange provides financing for film producers. That’s its primary benefit. But studios don’t need that for their own produced-films. Their produced-films are self-financed, exactly because the studio’s modus operandi is to select the most commercially-viable projects, fully controlling that film’s marketing and release, with the objective of reaping 100% of that film’s success. Depending on how the market is arranged, studios may be able to opt-out of listing these produced-films on the exchange. If they decide not to list such films, the studios will not incur any exposure to such films.
Studios, however, will face direct exposure to their acquired-films, i.e., films that are financed and produced by 3rd party, independent producers, but acquired after production by the studio for distribution. In most of these cases, the marketing and distribution of these films are the responsibility of the studio. The independent producer of this acquired-film has benefited from the exchange by getting financing of the production budget. But the studio, which now has the obligation of marketing the film properly, gets no benefit; in fact, they are negatively impacted in the form of less marketing control.
De Vany has described the theatrical release of a film as a tournament, in which broadly two forces play a role in advancing box office receipts (information cascades): in one type, marketing and star-power create the incentive for moviegoers to attend a film. In another, word-of-mouth provides that incentive. While the interplay of these two forces is complex, the general conclusion is that, in the first two weeks of release, moviegoers rely primarily on marketing and star-power. Only later does word of mouth influence moviegoers. A strong marketing campaign, consisting of opening on a large number of screens and a strong advertising campaign (including the advertising of stars), provides a floor under box office revenues. Suffice it to say that the theatrical marketing strategy is integral to a film’s box office performance.
A film future lessens the studio’s marketing control. A film futures exchange handicaps a studio’s ability to mitigate word of mouth via a strong opening and marketing budget. For acquired-films, this is exposure that the studio would rather avoid. A studio wishing to avoid acquired-films that are exchange-listed will have less choice of films which they can acquire.
The costs of implementing a film futures exchange will likely be borne by the entire industry. Cantor has proposed a “firewall” type implementation of compliance. The costs, both at the individual entity level, and at the broader oversight level, will most likely be distributed, if not equally, then broadly across all films. The increased costs may likely be passed on to the studios via increased acquisition costs.
But beyond acquired-films, the studio is also impacted indirectly. The studios have rightly posited that, should something go wrong in a futures market (market manipulation, insider trading, etc.), then such negative publicity will impact the entire industry, not just the independent film market.
The independents have everything to gain. Forever scrambling to find financing even in better days, the independent producers find it even more challenging given the current economy. A vibrant futures market would benefit immensely in providing an alternative source of financing (see our prior article on the mechanics here).
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