Hollywood opposes betting markets on film revenue

While the industry’s opposing comments were not yet final on Wednesday afternoon, Mr. Pisano and others said they were expected to cite a host of potential problems. Those include the risk of market manipulation in the rumor-fueled film world, conflicts of interest among studio employees and myriad contractors who might bet with or against their own films, the possibility that box-office performance would be hurt by short-sellers, difficulty in getting or holding screens for films if trading activity indicated weakness and the need for costly internal monitoring to block insider trades.

Among the potential abuses, the studios contend, is that a speculator might leak an early version of a film to the Internet and then profit from its subsequent poor performance at the box office.

The full story is here.  I suspect that once you cut past the rhetoric the most important factor on that list is: "difficulty in getting or holding screens for films if trading activity indicated weakness…"

The recorded music industry has collapsed for a number of reasons, but one is that pre-purchase web listening helps consumers avoid songs and albums they don't really want to buy.  There are fewer mistaken music purchases today than in say 1986 but of course that also means fewer music purchases.  That's good for consumer welfare, even if it's not always good for the music corporations and artists.  If the same trend came to the movie sector, many current business models would prove unsustainable.  As it currently stands, previews often try to trick audiences rather than enlighten them; sampling a pre-purchase MP3 file in contrast can only enlighten you.

Counterintuitively, introduction of the betting markets could make movies worse in quality (relative to my tastes at least), by inducing producers to focus on making "the sure thing," especially if betting on the movie starts very early.  (Keep in mind that the fixed costs of using theaters may require a minimum level of market interest above some threshold.)  I don't so much mind bad movies because I simply walk out of them, so I prefer a higher variance in quality than may be socially optimal.

So much of our cultural industries have been built on consumer mistakes and those days are coming to an end, rapidly.