a very recent article from red herring on ideas markets (ish) and their
recent move to be commercialised.
When the Hollywood Stock Exchange (HSX) launched in 1996, it was one of the
coolest ideas in the content realm. Rather than trying to replace the
television with short-form programming, HSX.com would become the movie
buff's gambling home, a place to make virtual bets (involving no real money)
on the success of movie stars, upcoming films, or even entire studio slates.
Movie fans would go to the site and make predictions on film success and
star power by buying and selling shares on a faux exchange. An electronic
ticker scrolled along the eaves of the company's Hollywood headquarters. The
site would sell ads based on page views, and the information generated from
the audience's trading was to be packaged and sold for tidy six-figure sums
to studios betting $150 million a pop on big movies.
New HSX chief executive Brian Dearth proudly reports that one day last week
the site had 28,000 registered members log in to make 55,000 trades. Today,
some 800,000 fans have registered with the site. But Hollywood never bought.
Neither did the public, really. As gaming sites soared in popularity, HSX
faltered. IWon, the highest-profile Web gamer, is the 40th most-trafficked
site on the Web, according to Nielsen/NetRatings, with an 8 percent reach.
HSX, on the other hand, doesn't even show up on the traffic monitor. To
date, with the research group still struggling for footing five years after
the company was formed, no research reports have been sold to the studios.
So what is a struggling dot-com to do? Between 1996 and 2000, HSX raised and
spent $20 million in capital from the likes of NBC, SBS Broadcasting,
Citigroup Investments, Keystone Group, and Genesis Partners. It spent more
than 10 percent of that cash on a weekend-long party over Oscar weekend in
March 2000. Moby performed, as did Earth, Wind & Fire. At the Sundance Film
Festival it took control of a café at the top of Main Street, labeled it the
HSXpresso Café, and lured festival fans in with free cappuccino. It
advertised every morning on Howard Stern's national radio program, buying
the most expensive spots, with the DJ and his sidekicks raving about the
site every morning for months.
CANTOR TO THE RESCUE
Out of cash and headed the way of most other Hollywood dot-coms, HSX took an
interesting turn. In May, Cantor Fitzgerald, a most un-Hollywood company,
reportedly bought HSX for less than $2 million. Since the 1970s, Cantor has
been a leading trader of bonds, selling large blocks of 30-year treasury
notes for big financial houses like Salomon Smith Barney and Goldman Sachs,
which like to make their big moves anonymously.
Cantor wants to make HSX legitimate. As of last month, with the opening of
Jurassic Park 3, residents of the United Kingdom can bet real money on the
performance of movies, stars, and studios. They call it spread betting, and
it has mainly been used by financial traders who want to risk money on
market moves of indices, foreign currency exchange rates, or individual
stocks. Cantor makes its money on the spread between the actual market and
the price at which the bettors buy or sell. Cantor also makes books on
sporting events like cricket and football. The winnings, bless those
English, are tax-free.
Though only 17,000 people are registered with HSX in the UK and the entire
spread-betting industry is at just about $100 million, Cantor has high
hopes. Its long-term plan is to launch a movie futures market in the U.S.
that the studios can use to hedge their big bets, and consumers can bet on
movies in a film market that is ten times the size of England's. "We're
quite aware of the gambling restrictions in the U.S.," says Cantor
Fitzgerald International's president, Lee Amaitis. "Right now we're just
trying to work out the practical design. We'll be ready to move when the
regulations soften." Mr. Amaitis says he wants to set up a film futures
exchange for the studios, traders, and consumers, just like the one it
manages in treasury bills. Then the data collected becomes a truly
meaningful bit of information.
But even with what Mr. Dearth says is a treasure trove of data to sell, the
studios still like doing things the old-fashioned way. They rely heavily on
companies like the National Research Group, now part of European media
conglomerate VMU, which goes around inviting mall rats into free screenings
and asking them to rate the movies they see. If the response is bad, they
change the ending. The data that HSX collects from its fans, Mr. Dearth
says, is an extremely efficient barometer of public taste. "Right now we're
sipping from a fire hose," says Mr. Dearth of the company's data
opportunities.
Still, the studios won't bite. Instead, HSX is going after car companies,
fast-food chains, video chains, and investment banks that are looking to
predict the economic future of publicly traded studios in proprietary
research reports. A good idea, but surely a consolation prize in comparison
to winning the studio business. Basically, HSX is betting on the notoriously
slow-moving, insular, and technophobic Hollywood industry as well as on the
loosening of gambling laws in the U.S., which has historically feared the
widespread deployment of anything but state-sponsored lotteries.
Of course, Cantor does have Hollywood history. Bernie Cantor, its cofounder,
set up shop in L.A. in 1945 and began trading stocks for Kirk Douglas and
Zsa Zsa Gabor. He moved into bonds in 1972 to tap into a less-crowded
marketplace. He's now dead, but Cantor's new leaders have a fresh and
untapped market once again. It is unlikely that it will ride it to similar
heights.
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