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David Poland

By David Poland

Watching The Commoditizing Lie On C-SPAN

I barely know where to start with the absurdity of the Canter Exchange’s notion of trying to commoditized Domestic Box Office Futures. Every time I see or read something new, it gets worse.
Let me start with this… these guys are liars.
Their big spin is that this whole effort is about creating new ways for the film industry, large and small, to hedge funding. But the lie? Even on the Canter site, the issue of funding is based on the eventual maturity of their real business…. getting small fish suckers to gamble on domestic box office.
Seriously… DOMESTIC box office only… which at most represents 30% of revenues.
Moreover, Canter is essentially piggybacking on the studios’ big investments while providing absolutely no benefit to the studios That’s why MPAA opposes this so definitively. There is a lot of talk about how this system would allow studios and funders to hedge their investments. But there is no system to achieve that currently being offered.
Worse, even in the fantasy worlds set up by Canter’s cabal of uninsightful academics who are the ones claiming this is legit, the public is the victim of any future hedging. One fool offers that it will benefit studios to hedge by using the funds from the DBOF investors instead of taking on partners who take, for instance, foreign theatrical as compensation for the investment. Lucky Joe Six Pack!!!!
And what would this fantasy return on the hedging dollars be… since it’s not any form of non-domestic theatrical revenue? Let’s chew on the notion that this exchange would cover half the budget of a $100m movie. $50 million. At 100% return to the exchange, the movie would have to gross about $93m domestic to return the $50m.
But what about marketing? If the studio is paying it themselves, the benefit of not selling off foreign is gone. In fact, the studio is now in for, say, $150m to the exchange’s $50m and has, essentially, given up the domestic theatrical market.
Of course, this won’t happen. Studios would pass the costs on to the exchange investors. So at 100% return minus p&a, break-even for the exchange is about $190 million at the box office.
Of course, this won’t happen either. Even if studios give the exchange 75% of domestic rentals minus p&a for the $50 million, their break-even is about $232 million.
THAT is why investment runs dry. This is not a good business in which to invest, unless you get lucky or you get tax benefits.
Want to claim this is good for lower budget films? Great. Everything except marketing reduces to scale. Marketing costs become a higher percentage of the spend.
But again…. This investment/hedging nonsense is a smoke screen. The business for Canter is to charge a few percent every time a sucker/investor buys shares.
They will sell “the glamor of the movie business” as a way to play the lottery while you get to say you funded Avatar, meanwhile forgetting to mention that their ultimate best case scenario is you doubling your money, not multiplying it by ten. That would truly by a one in a million event.
And again, the thing that most separates movies from corn is that revenues do not stem from the existence of the commodity, but by many other variables that aren’t encountered until late In the existence of the commodity. Yes, a trucking strike could affect the delivery of the corn. But even that is relatively easy to anticipate compared to the vagaries of the film business.
The whole thing is currently based specifically on domestic box office returns from wide release films. So to begin with, that market is dominated by majors and is likely to become more their domain, not less. Second, this takes distribution choices out of the hands of professionals and requires wide releases to make contractual marks… even if it is a losing idea… and even though there seems to be no consideration of the costs of maintaining a failing release.
I feel like Alice, as every way I turn, another bizarre reflection if this crazy idea turns up. It feels like an analysis that never ends because there are so many flaws built into the idea itself.
One last thing… if it’s just screwing over people dumb enough to buy into this and there may be a profitable angle (like shorting domestic theatrical and pushing to other kinds of domestic delivery), why should MPAA balk. It’s not because they fear The Future. Bob Pisano was dumped by SAG, in part, because he sold the union out to Netflix and their future. It’s because they will be the first ones sued… over and over again. When people lose their money, yeah, they will sue Canter. But you can be sure that the studios will be named and pursued… even if they disassociate themselves from this gambling venture 100%. And again, this is with no upside for the studios.
There is a lot of money in legal con artistry. Canter will keep fighting. And I will – sigh – keep researching. I wish this was my last word on this. But the threat is real. And this is an uniquely destructive possibility.

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3 Responses to “Watching The Commoditizing Lie On C-SPAN”

  1. Foamy Squirrel says:

    That’s… not how futures works. Futures is about the allocation of risk, not participation in revenues.
    Here’s an example:
    Universal has just had a couple of bombs in a row. You know, hypothetically speaking. Their cash reserves are looking pretty bad and if they have one or two more bombs then they’re in real danger of having to default on some of their debt obligations. They’re really risk averse at the moment.
    They’ve got a couple of big budget films coming out later in the year, and they decide they want to hedge against them bombing. They offer 50% of the domestic revenue for 50million. Now, whatever happens at the box office, they’re guaranteed that they’re not going to pull a Green Zone – they’ve got a $50mil floor. If for whatever reason they get a Transformers-level smash instead, well they get 50% of the take. It’s not as good as 100% of the take if it’s a smash, but that’s the exchange they make for the $50mil minimum guarantee.
    Can they deliberately sabotage the film? Sure, but it’s kinda dumb – they still get 50cents for every dollar of domestic so it’s in their best interest to push that number as high as possible. Are there lots of variables compared to other commodities? Of course, but the size of the volatility is unimportant – the same principles for valuation are true if there a 5% variability or 90% variability. The investors (should) simply require more compensation for accepting the higher risk.
    Do I still think it’s a dumb idea? Yes. Films aren’t commodities so the volatility varies wildly from film to film making accurate valuation close to impossible, and the blatant lack of transparency in Hollywood in general makes defrauding the gullible too easy. There may be a way in the future to make it work in some shape or form, but here and now it’s probably not a good idea.

  2. Foamy Squirrel says:

    I should add, however, that the first futures trading exchange was established in 1848 and it wasn’t really until the 1970’s that formal modeling was established for valuation. So for over 100 years people were trading in futures with pretty much just the aid of newspapers and their gut instinct and it seemed to work okay.

  3. Foamy Squirrel says:

    Man… people around here just can’t win on weekends. Either they get Lex drunkenly mumbling about K-Stew or me drunkenly mumbling about derivatives. We must be awesome at parties.
    Anyways – it’s broadly true, if a little confusingly phrased. The exchange of monies is fairly zero-sum, it’s the exchange of risk that makes futures exchanges work – but there are problems with trying to shoehorn box office revenues into “commodities”.

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It shows how out of it I was in trying to be in it, acknowledging that I was out of it to myself, and then thinking, “Okay, how do I stop being out of it? Well, I get some legitimate illogical narrative ideas” — some novel, you know?

So I decided on three writers that I might be able to option their material and get some producer, or myself as producer, and then get some writer to do a screenplay on it, and maybe make a movie.

And so the three projects were “Do Androids Dream of Electric Sheep,” “Naked Lunch” and a collection of Bukowski. Which, in 1975, forget it — I mean, that was nuts. Hollywood would not touch any of that, but I was looking for something commercial, and I thought that all of these things were coming.

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I was walking down the street and I ran into Bradbury — he directed a play that I was going to do as an actor, so we know each other, but he yelled “hi” — and I’d forgot who he was.

So at my girlfriend Barbara Hershey’s urging — I was with her at that moment — she said, “Talk to him! That guy really wants to talk to you,” and I said “No, fuck him,” and keep walking.

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“That was the most disappointing thing to me in how this thing was played. Is that I’m on the phone with you now, after all that’s been said, and the fundamental distinction between what James is dealing with in these other cases is not actually brought to the fore. The fundamental difference is that James Franco didn’t seek to use his position to have sex with anyone. There’s not a case of that. He wasn’t using his position or status to try to solicit a sexual favor from anyone. If he had — if that were what the accusation involved — the show would not have gone on. We would have folded up shop and we would have not completed the show. Because then it would have been the same as Harvey Weinstein, or Les Moonves, or any of these cases that are fundamental to this new paradigm. Did you not notice that? Why did you not notice that? Is that not something notable to say, journalistically? Because nobody could find the voice to say it. I’m not just being rhetorical. Why is it that you and the other critics, none of you could find the voice to say, “You know, it’s not this, it’s that”? Because — let me go on and speak further to this. If you go back to the L.A. Times piece, that’s what it lacked. That’s what they were not able to deliver. The one example in the five that involved an issue of a sexual act was between James and a woman he was dating, who he was not working with. There was no professional dynamic in any capacity.

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