HSX Think ‘Gladiator’ is going to be the best movie ever?

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Even with two movies coming out this month alone, Ben Affleck’s “star bond” on the Hollywood Stock Exchange is dropping like a stone. Meanwhile, the bond on his girlfriend er, whatever Gwyneth Paltrow, who has appeared only in “The Talented Mr. Ripley” since winning an Oscar last year, has risen from $1,143 to $1,931 since Jan. 1.

Why?

Welcome to the vagaries of trading on the Hollywood Stock Exchange, a Web company where surfers start out with $2 million in funny money and the return on their investment depends on the buzz from a big opening weekend or on who gets the cover of Entertainment Weekly.

Based in Santa Monica and located at


www.hsx.com

, the Hollywood Stock Exchange gets 272,000 unique users a month and more than 1 billion shares are traded each day (on some days, it beats the Nasdaq in trading volume). The Web site is described by some as a respite for serious day traders, who can play the boards without risking the kids’ college fund.

But it’s not all just fun and games. Unbeknownst to many traders, their picks and other demographic information are up for sale presumably to the major Hollywood studios, which can use the reams of data from HSX to better hone their marketing strategies.


Options on Oscars

The premise behind the Hollywood Stock Exchange is similar to the real stock market. After registering, a trader gets $2 million in Hollywood Dollars to play around with in various kinds of investments: bonds in particular movie stars, stocks in movies, or funds for specific movie studios.

Right after the Academy Award nominations were announced, the exchange set up separate options on the nominees, which will expire after the awards show. Traders buy shares in nominees, whose value continues to fluctuate until the big day; after the awards are announced, winners who bet on the right nominees “collect” whatever they’re trading for on the day of the awards; losers get nothing.

Besides movies, there is a section for fans to trade on their favorite rock stars and television shows.

Not that the winnings are worth anything. Eventually, HSX officials say there will be a segment of the Web site where traders can exchange their Hollywood Dollars for compact discs and DVDs, but until then, they have no value other than the satisfaction they provide successful traders.

Apparently, that’s enough. Many are taking it so seriously that they’re plopping down actual dollars to buy successful star portfolios from other players on auction sites like eBay.

“My portfolio is only worth $4.5 million, and as you know, they start you off at $2 million. So I’m bidding on a portfolio on eBay because I could have a lot of fun with such a big portfolio, and $17 (the going price of the portfolio on eBay) really isn’t that much,” said Joseph Verrone, a student contacted by e-mail after he submitted his bid. “I play HSX because I love movies, and this is a really great way of keeping up with what is happening in the biz.”


Collecting data from users

The site isn’t just a place where happy-go-lucky movie fans can buy stocks in the still-untitled, still-uncast, still-to-be written “James Bond 20,” the 20th installment in the spy series by MGM.

Traders are providing demographic information that can be sold to the studios, according to David Herman, president of Hollywood Stock Exchange.

When users register at the site, they are asked for their gender, birth year and zip code. Traders will receive an additional $25,000 Hollywood Dollars if they complete a section that reveals their street address, marital status, income, education and occupation.

After collecting this information, HSX then tracks what securities the user is putting in his or her portfolio. For instance, do women between the ages of 18 and 34 have an interest in “The Talented Mr. Ripley”? The number of people in this demographic who buy bonds in stars Matt Damon and Jude Law should reflect their interest in the film, Herman believes.

Six of the seven major studios have sponsorship deals with HSX, and Herman says they have also expressed interest in buying the site’s demographic information, but none has yet signed such a deal.

“They can get immediate feedback on everything from Tom Cruise to a movie that’s in development three years before it gets into the theaters,” Herman said. “Studios can get comment on the prospects today, based on what we’re extrapolating from the users. And our users are the exact demography that they want to market movies to, and that television studios want to market pilots to.”

Currently, the exchange gets much of its revenues through banner ads from Toyota Motor Sales USA, Hotmail and movie paraphernalia vendor BigStar.com. Individual movies also sign promotional agreements with the Web site.


No profit yet

In addition, the traders’ own competitive drive helps fill the coffers at HSX. The site offers an online store where people get Hollywood Dollars in exchange for plunking down cold, hard cash on sporting gear and electronic goods. For instance, if you buy a breadmaker for $134.50, you get $1,345,000 Hollywood Dollars.

HSX was founded in 1996 by Michael Burns and Max Keiser, two former investment bankers. Herman came on afterward to advise on Internet strategy.

“The original business plan was to have people become limited partners in movies actually have them do some film financing,” Herman said. “But we decided the SEC probably wasn’t ready for that yet. So we jumped on the opportunity to make it a market research company.”

Investors in the Hollywood Stock Exchange include Keystone Venture Capital and SBS Broadcasting, Herman said.

The company has not yet turned a profit and Herman declined to give specific revenue figures. No decision has been made yet on whether to go public.

But like anything that gains popularity on the Internet, HSX has generated something of a cult following. Dozens of pages have been created that are linked to the HSX site and offer Motley Fool-esque investment advice on what movies or stars to pick. (HSX is named as the “in” office distraction in the March issue of Vanity Fair.)

“A lot of my day was spent trading Wall Street stocks for real,” said David Cavotti, 36, a teacher in New York who spends about four hours a day on the Web site. “I would always get all upset and nervous right before I hit the trade button, because who knows? This might be affecting my children’s future. With the Hollywood Stock Exchange, you can just laugh and giggle, and if you make a mistake it’s no big deal. My one portfolio started for $2 million and it went up to $5 million in a month.”

Cavotti’s strategy is to buy shares in movies right before their opening weekend and then sell them after they get a box-office boost. He says he has a “sure thing” pick for the Academy Awards: he’s bought “American Beauty” on the theory that it will win both best picture and best screenplay.

“The Oscars like children in supporting roles,” he said. “Just look at Tatum O’Neal and Anna Paquin. So Haley Joel Osmont in ‘The Sixth Sense’ is my pick for supporting actor.”

Cavotti, like Verrone, was bidding for a large portfolio of HSX stocks last week on eBay. These portfolios, which sometimes are worth hundreds of millions in Hollywood Dollars, can sell for more than $100 in real dollars.

What would possess a person to spend hard-earned cash on an investment portfolio that’s fake?

“That’s funny, my wife asked me the same thing,” Cavotti said. “But look at what most people do, which is go out and spend $50 on ‘Tomb Raider 3.’ How often will they play that? I bet it’s not as often as I play on (the Hollywood Stock Exchange).”

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