Hollywood to the rescue?
1. Box-office figures are merely estimates and so, presumably, cannot be relied upon. Whatever the accuracy of this metric, still they must certainly be galaxies more precise than either the AAA bond ratings given in connection with subprime financial instruments or Greek fiscal data. On the other hand, one should not dismiss out of hand the impact of the uncertainty of the underlying metric in questioning the effectiveness, if not the very viability, of such an exchange. As Frank Knight taught us nearly a century ago, risk is one thing, uncertainty is quite another.
2. There is an information imbalance in the film business. A study carried out by Thomas Gruca of the University of Iowa found that there was an average error of 31% in predicting revenues. That said, there is a severe assymetry of information between the studios and other investors. As for the studios, they presumably have pre-screening insights gleaned, from contact group viewers, as well as knowledge about marketing plans and budgets and how the film will be rolled out. In the words of The Economist, "almost every trade by a studio would be an insider bet."
3. Studios would never short their own films via trades on the exchanges. The reason for this, as suggested by the article, is that Hollywood moguls can never be seen as somehow acting in a way that undercuts its own persona of success and power, much less affecting the possible commercial success of its films.
Assuming that the studios have their way and the exchanges never get off the ground. The question still remains: is there a better way for them to hedge their risk? Or is the old way also the new way for hedging risk? After all, events of the last three years have shown that one should exercise a healthy skepticism before adopting the latest offering of finanical innovation.