Hollywood Stock Exchange
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The technology that drives the Hollywood Stock Exchange is the Virtual Specialist technology invented by HSX co-founders and the exchange's creators Max Keiser and Michael R. Burns, who were awarded a U.S. patent no. 5950176 in 1999 for the invention. Claims of this patent cover trading applications for trading virtual securities using virtual currencies over a network.
Because trading directly affects the prices of the securities – purchasing enough shares of a stock causes its price to rise, and selling causes its price to fall – and because the ultimate value of a moviestock is based on the film's box office, stock prices act as box office predictions. For example, if a particular moviestock trades at "H$40.00", the market is predicting that the movie will gross US$40 million at the box office in the first four weekends of wide release. In 2007, players in the Hollywood Stock Exchange correctly predicted 32 of the 39 major-category Oscar nominees and seven out of eight top-category winners. The Hollywood Stock Exchange is considered a good example of a prediction market.
Previous incarnations of the game included a music market (for purchasing musical artists), prizes for top gainers and, briefly, a "buyout" program in which HSX would reward top players by purchasing their portfolios at a price of US$1.00 per HS1 million if the player listed the portfolio for sale on eBay. These features have been discontinued. The practice of selling portfolios on eBay was inaugurated by Curtis Edmonds, a former Texan lawyer.
HSX attracted some private investment during the dot-com boom and ran TV ads on cable channels in an effort to attract players. After the dot-com crash, HSX was eventually acquired by units of Cantor Fitzgerald. Cantor has used HSX's moviestock prices to assist Cantor's gambling operations in the United Kingdom, in which bettors can place bets on how much money US films will gross. HSX is headquartered in Century City, California.
Starbonds represent the "trailing average gross" of an actor or director's last five movies. As with moviestocks, trading directly affects the value of these bonds until they adjust after a new release has completed its 4 weekend (or 12 weekend for limited releases) run. Starbonds can be volatile, as an actor or director may star in five blockbuster movies before starring in a small independent film, which would cause their starbond to fall rapidly.
Options & Derivatives
A movie option may be either a "call" or a "put." A call is claiming that the movie will make more than a certain amount for its opening week, and a put is claiming that it will make less than that amount. For example, suppose there is a H$10 million call and put for the opening weekend total of a movie called Rosebud. If Rosebud makes US$20 million in its opening weekend, those who called Rosebud at H$10 million will receive H$10 for each share of the Rosebud call that they purchased, and those with a put would lose the money they invested. If Rosebud made US$5 million, those with the put would receive H$5 a share and those with a call would earn nothing. Options were renamed as derivatives in June 2006.
Some veteran HSX players run special securities called funds. A fund is similar to a personal portfolio, although all of a fund's holdings are visible to the public. Funds also have themes, so instead of being able to invest in any security, the fund manager may only be able to invest in horror movies, or sequels, or movies based on video games, or only StarBonds, or only those issued by a specific movie studio, for example. The price of a fund is only influenced by the stocks held by that fund, not by players who buy or sell the fund. Most funds cash out once they reach H$100 per share, or the equivalent of H$100 million for a personal portfolio. This type of security can help to educate newer players about how to manage a portfolio effectively, and funds also represent an opportunity for slow and steady growth.
During the holidays, there were "holiday warrants" that alloweded one to predict the final gross of a movie by President's Day weekend of the following year. For example, there was a Narnia warrant of H$180 million. Since Narnia would make over US$300 million by February 20, 2006, anyone who purchased the warrant made over H$120 per share. On the other hand, Zathura had a holiday warrant for H$70 million. Since Zathura closed a month after its release and made less than U$30 million, anyone who predicted that it would make more than US$70 million lost their investment. During the summer, there were similar "Blockbuster Warrants" that allowed one to predict the final gross of a movie by Labor Day weekend of that year. Currently, Blockbuster Warrants are issued throughout the year for those movies that will gross $100 Million or more through their first 12 weekends of release.
There are special warrants for first year scripted TV shows based upon the number of episodes that will be shown by May 31st, the end of the TV Season.
HSX also releases various special derivatives throughout the year. During the summer of 2006, there were derivatives for the FIFA World Cup. Other past special warrants invloved the contestants on Survivor, American Idol and top categories of the Grammy Awards.