The US Commodities Furtures Trading Commission has approved an interesting exchange:

CHICAGO (April 16, 2010) –– Media Derivatives (“MDEX”) is pleased to announce that it has received approval from the U.S. Commodity Futures Trading Commission (“CFTC”) as a designated contract market. Media Derivatives will operate under the name The Trend Exchange® (“TrendEx”). TrendEx is the first new exchange to offer innovative products that has been approved since 2004 and one of only 7 US based commodities exchanges. TrendEx is primarily focused on the development of a variety of products to benefit the entertainment industry with one if its initially proposed products being designed to help mitigate risk and enhance the successful financing of motion pictures through trading of opening weekend domestic box office receipts. TrendEx, like other CFTC approved exchanges, will consider other products to offer beyond those of just the media industry.

Mr. Swagger added: “The recent attention to our initially proposed product is normal and healthy. Historically, initial product skeptics have eventually become the greatest adopters through a process of time, education and communication that demonstrates the many benefits of futures market for the US Economy. Now that our exchange is approved, we will resume the work we’ve been doing throughout the entertainment industry.”

By designing its products for institutional traders and commercial users, TrendEx intends to fulfill critical financing needs. Historically production companies have had no effective way to minimize the risk of producing major motion pictures, which cost on average $107 million per title.

However, approval of the exchange is the easy part–the hard part, apparently, will be getting the particular products approved:

From BW/Bloomberg:

The CFTC must still approve the type of contracts to be dealt before Trend Exchange can begin. The company has said its first product will center on opening-weekend box office.  Product approval is “a very different question” from exchange approval and raises “significant concerns,” Chilton said in an e-mailed statement. He said he had “reluctantly” concurred in today’s vote. “We have serious concerns regarding the trading of media contracts and we support a very thorough review of all of these first-of-a-kind products,” CFTC Commissioner Scott O’Malia said in an e-mailed statement. U.S. Senator Blanche Lincoln, an Arkansas Democrat, today added language banning trade in movie futures to a broader derivatives bill she is writing. Lincoln is chairman of the Agriculture Committee that oversees the commodity commission. Media Derivatives’ market plans to begin trading in the third quarter, Stephanie DiIorio, a company spokeswoman, said before the vote.

I see several problems with these derivatives.  First, accounting for movies is notoriously complicated, and it isn’t just on the expense side.  What gets included in box office revenues?  Revenues from pay TV, hotels, airlines?  International releases?  Firms have a great deal of flexibility in contracting and can keep their total revenue stable while altering its allocation to different forms.  Second, box office revenue can be greatly influenced by marketing decisions.  Firms that have sold futures could have strong incentives to manipulate expectations of marketing plans.