It s ironic that an industry so fiercely committed to free expression would be so vehemently opposed to free trade. Yet in recent weeks, movie studios, theater owners, the Motion Picture Association (MPAA) and the Directors Guild of America have lobbied Congress to stop the proposed launch of new futures markets based on box-office movie receipts.

Senators including Dianne Feinstein (D., Calif.), George MeLieux (R., Fa.) and Al Franken (D., Minn.) have called on regulators to halt approval of the new contracts, proposed by Cantor Futures Exchange and upstart Variana Networks Trend Exchange.

Sen. Blanche Lincoln (D., Ark.), chairwoman of the Senate Agriculture Committee that oversees the Commodities Futures Trading Commission (CFTC), is seeking to specifically ban all trading on motion picture box office receipts, or any index, measure, value, or data related to such receipts. Incidentaly, she also sought to have Wall Street banks banned from trading all derivatives.

Yet just as one is perfectly free to create a movie, so is one able to speculate and contract regarding the potential success of that movie. And in an extremely volatile industry known as a financial black hole, film futures could become useful tools for producers, studios, stars and other commercial interests in a very risky business. Movie studio United Artists was bankrupted by the flop of their 1980 western, "Heaven s Gate," which lost an inflation-adjusted $104 million dollars.

EXTERNAL OBJECT PLACEHOLDER: src=http://www.youtube.com/v/Shs6ZboDwSQ&hl=en_US&fs=1& height=385 width=480
Heaven s Gate Trailer (1980) - $104 million (inflation-adjusted) loss.

Carolco Pictures had huge success with the first three Rambo movies and "Terminator 2: Judgment Day," which was the highest-grossing film of 1991, earning over $500 million dollars. Just four years later, the studio declared Chapter 11 bankruptcy protection after the disastrous releases of "Showgirls" and "Cutthroat Island," which lost an inflation-adjusted $146 million and is regarded as the biggest box-office flop of all time.

EXTERNAL OBJECT PLACEHOLDER: src=http://www.youtube.com/v/SW7HQk1dnfY&hl=en_US&fs=1& height=385 width=640
Cutthroat Island Trailer (1995) - $145 million (inflation-adjusted) loss

It wasn t too long ago when hedge funds, banks and private-equity firms were falling over themselves to invest in uncorrelated assets such as films. The Pursuit of Happyness , Poseidon and Blood Diamond are all recent films partly financed by hedge funds or private equity.

Had futures contracts, such as those being proposed been available, the studios could have theoretically hedged their risk against a flop by selling short, at least a portion, of expected box office receipts. The studio s revenues would be locked in and potential losses would be born by speculators, allowing a more stable and certain business model instead of the boom/bust cycle for which the industry is now known.

Last year we wrote about the 1958 ban on onion futures, still on the books to the day, and how onion prices actually became more volatile after the ban was passed than during the period in which onion futures were traded.

If movie studios don t want film-based futures contracts to succeed, then they simply shouldn t trade them. Markets cannot exist without active commercial participation as countless failed futures contracts, such as those on shrimp and broiler chickens have demonstrated. Intrade.com, the Ireland-based real-money prediction future market already offers contracts in movie receipts. They re virtually untraded.

Ten years ago, European exchange operator Euronext launched Winefex Futures contracts based on fine Bordeaux. The wine industry opposed them by not trading them, and they died after barely nine months.

Rather than using Washington to impinge on others freedoms, that s the approach the movie studios should take.