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Box Office Futures Trading Suffers a Setback

Thursday, 22 Apr 2010 | 11:30 AM ET

If you're eager to bet on the box office, don't hold your breath. A ban on box office futures is one set close to law. A provision banning futures trading of box office estimates was passed by the Senate Agriculture Committee Wednesday, as part of the Wall Street Transparency and Accountability Act Financial Reform Package.

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This is a major setback to two companies' plans to establish box office futures trading —Cantor Fitzgerald and Media Derivatives.

And this comes less than a week after the Commodities Futures Trading Commission approved the first stage in the process of establishing the exchanges—the approval of the exchanges themselves.

But the CFTC hasn't yet approved the specific contracts to be traded, and has another three months before the potential to approve those contracts expires.

Cantor Exchange and Media Derivatives have proposed futures markets for Box Office performance. The idea is that they'd be traded by professional traders and movie fans. And the companies suggest that film investors could use the exchanges to raise financing or hedge against box office bombs.

But Hollywood has broadly come out in staunch opposition to this business. Movie studios, represented by the Motion Picture Association of America, the National Association of Theater Owners, and the Directors Guild, among others, have come out in staunch opposition to the plan.

They argue that the futures contracts are ripe for manipulation with inside information, and they could create bad publicity for films. With the movie industry facing so many challenges, including the decline of DVD sales, it doesn't want to deal with another challenge that could eat into earnings.

What next? Today the House Subcommittee on General Farm Commodities and Risk Management will hear from both sides.

Both the president of the MPAA and the heads of Cantor Futures Exchange and Media Derivatives will testify. For this proposed ban to be enacted, it has to be merged with Senate Banking Committee legislation, approved by the house, and sent to the White House to sign.

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.