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I don’t link to this web poll so as not to disturb the polling process.

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Previously: Cantor Exchange

Previously: Should the Hollywood Stock Exchange become a real-money betting exchange? – 2007-10-04

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Fox Business on Cantor Exchange — Via Alex Costakis

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Previously: Cantor Exchange

Previously: Should the Hollywood Stock Exchange become a real-money betting exchange? – 2007-10-04

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Hollywood Ending – Trader Daily – October 4, 2007 – by Robert LaFranco

A decade ago, a Wall Street trader and an L.A. dealmaker united to remake the movie industry in the image of the markets. They had capital, ambition, securities-industry savvy and an American public captivated by money and celebrity. So whatever became of the Hollywood Stock Exchange?

In late March 2000, Max Keiser and Michael Burns were tucked away in the VIP lounge of Hollywood’s House of Blues, gleefully presiding over one of the town’s hottest Oscar parties. The duo surveyed the scene: a throng of industry insiders, journalists, style-savvy party crashers, even Ron Jeremy, all descending on a buffet table brimming with enough gourmet fare to feed a small former Soviet republic. Spinning tunes was Moby — among the world’s best-known DJs at the time — while Earth, Wind & Fire prepared for their headline set. Outside, a crowd of wannabes loitered anxiously around the velvet ropes, angling for a way to get in.

It was a heady time for Keiser and Burns, two former finance whiz kids who five years earlier had teamed up to start the Hollywood Stock Exchange. Their dot-com-era high flyer was going to change the movie business by revolutionizing the way movies were paid for — giving independent filmmakers a way to raise money online from the public and other investors. The way they saw it, soon anybody with a credit card and a computer could become the next Robert Evans.

Already, Keiser was a regular on Entertainment Tonight and The Howard Stern Show. Two months earlier, the HSX had proven the surprise hit of the Sundance Film Festival — publicity-wise, anyway — as Keiser and Burns’s rented cafe drew hefty crowds who came for free cappuccino and a chance to check their e-mail. But the best buzz had come a few weeks later, when the HSX unveiled an enormous, colorful ticker in the heart of West Hollywood, offering live updates of “star stock” and “movie bond” prices scrolling along the side of a 7,000-square-foot piece of prime real estate like a newfangled companion to the Hollywood sign.

“We were going to change the way Hollywood worked,” says Keiser today. “It was an industry ready for change.”

But like many rising stars in Tinseltown, Keiser and Burns — and the exchange they created — would eventually flicker and dim. Not long after Oscar night 2000, the already buckling stock market cratered with sickening ferocity and sank into a three-year tailspin. For HSX, it was the moment in the movie when the ship hits the iceberg.

Today the founders and original investors in the Hollywood Stock Exchange are scattered around the globe with little to show for their efforts but a curious line item on their résumés. It’s likely small solace to them that hedge funds and Hollywood are now converging like at no time in history — at least proving that their notion of an impending sea change in the way movies are financed was somewhat prescient. And it’s probably salt in their wounds to know that in June, Dallas Mavericks owners Mark Cuban and Todd Wagner launched their own Hollywood financing firm — in their case, for buying out and bundling profit-sharing deals. For their part, Keiser and Burns remain the hapless protagonists of that rarest of Hollywood productions: a decade-long epic without a happy ending. And for every trader who has ever longed to close his positions, take his profits and stumble from the trading floor in pursuit of his dreams, theirs might be a reminder that not all markets are meant to be made.

It wasn’t supposed to be this way. In 1995, Max Keiser, a 35-year-old former stockbroker and one of Shearson Lehman’s biggest options producers, had come to Hollywood to work on a movie project that his old buddy Alec Baldwin had gotten placed at Miramax. Michael Burns, an investment banker with Prudential Securities in Los Angeles, was a 37-year-old with strong ties to the movie industry. Burns and Keiser met while working together at Shearson Lehman in the ’80s, but in 1990 went their separate ways, Keiser to Paris to live off his Wall Street gains. One day, while sitting in a Hollywood cafe called Barney’s Beanery, Burns and Keiser alighted upon the idea for an exchange in entertainment futures. Perhaps it was the high-octane espresso talking, but the way they saw it, their notion was revolutionary. The inspiration had come to them while thumbing through an industry trade publication, where they had seen a printed weekend box-office tally.

“It looked just like the listings for the S&P 500,” Keiser says. “I suddenly looked at the movie industry like Michael Milken viewed the bond market. The original business plan of HSX was an exchange for predictive products that would lead to re-monetizing the industry and breaking up the Hollywood cartel. Using this platform we would allow many, many, many more people to have access to funds.”

Based on his knowledge of the NYSE, Keiser began mapping out an exchange. He mimicked the double-action trading environment of a real exchange, setting up the whole thing in a virtual environment. He established a currency and treasury function, a virtual banking system, a virtual interest-rate function and other virtual back-end trading functions that he would eventually patent as the Virtual Specialist. Then he and Burns set about seeking approval to operate as an exchange that could democratize the insular movie business.

There was, however, just one little problem. The lack of transparency in Hollywood studio accounting practices made actual deliverables an impossible strategy to execute. Meanwhile, their business plan was hamstrung by Blue Sky laws and their inability to secure the CFTC’s blessing. So Burns came up with a new idea: If they pitched the product as a game and developed the whole thing as a virtual economy, they would avoid the regulations — and still have a robust trading environment that could someday be used as a real-money movie-business exchange. Burns invested $400,000 and sent Keiser to the developers at Cambridge Technology Ventures, who finessed and expanded it, turning it into a robust fantasy market. The result was a completely self-sufficient platform for the creation of valuable predictive data but, sadly for users, completely useless wealth.

Then again, considering that this was the mid-’90s, that seemed as good an idea as any.

“When we saw that Blue Sky rules made it difficult to accomplish the trading aspect of it, we should’ve spent more time talking up the community aspect or even building it up as a MySpace-esque environment,” Burns says. Instead, what the company began leaning toward was a consumer portal that would be not just an advertising vehicle but a source of data as well. Movie studios, it should be noted, conduct an enormous amount of market research before dropping $50 million on a movie, and the kind of data HSX was collecting was a natural fit for that purpose: Which demographic groups are buying into which movies and which stars? What is the public interest in horror films? How much buzz is there about the new Judd Apatow flick?

Prediction markets, based on the premise that mob wisdom rules, place trust in groupthink [???] over the postulates of individual experts — and in this arena, HSX would prove to be a resounding success. Since 1998, HSX traders have chosen the top eight Academy Award category winners with 85 percent accuracy. Just this past February, a few days before it opened in theaters around the county, the HSX stock price of Eddie Murphy’s Norbit was climbing through the 70s, while Hannibal Rising was hovering in the 30s. Using a simple formula known to the industry (divide the HSX price by 2.5 and multiply by 1 million), it has been consistently proved possible to predict a film’s opening-weekend box office with a fair degree of precision. (A 2006 Harvard Business School study found HSX to be a relatively accurate online prediction market, finding its opening-weekend forecasts to be on target 77 percent of the time.) According to HSX, then, Norbit would open well north of $24 million and Hannibal at $12 million. Indeed, Norbit — despite withering, often vicious reviews — grossed $34 million and Hannibal $13 million.

Which, for what it’s worth, is a neat trick. But what, exactly, is it worth?

It’s an open secret that for the past few decades, Hollywood studios have used a trio of research companies — Nielsen National Research Group, Online Testing Exchange and MarketCast — to decide everything from cast mix and storylines to marketing strategies and release dates. Thus, while the HSX was initially greeted with interest, it quickly devolved into something of an online sideshow to the research world’s Big Three. The industry was logging on, but getting anyone to pay for the data was a struggle.

Complicating matters, perhaps surprisingly, was the site’s high visibility. By 1999, as dot-com hysteria dominated the cultural landscape, revolutionary hubris was running rampant and HSX was, in some ways, taunting the movie industry. Keiser began appearing on Entertainment Tonight offering weekly box-office predictions based on HSX trading performance. He was a frequent pundit on cable news programs and a thorn in the side of the studios who did not much appreciate the fact that this fast-talking stockbroker was tainting the public perception of their movies by loudly declaiming their prospects before they were even released. At one point, Keiser says, studios threatened to boycott ET; Keiser was pulled off the air. Still, Web traffic to HSX was increasing rapidly, and it wasn’t long before more than 70 investors — including Citigroup, NBC, Travelers Insurance, Keystone Venture Capital and, of all things, the Scandinavian Broadcast Service — had ponied up some $40 million to get a piece of HSX. And although Keiser and Burns were still enamored of the notion of building a real futures exchange, their new investors dismissed the idea outright; they were, instead, eyeing an IPO. HSX built up a staff of about 100, more than a third of them in public relations and marketing, and the company went to great lengths to generate awareness, drive traffic and boost ad dollars — the favored revenue model of the day.

“I was outvoted,” Keiser grumbles today. “It was gut-wrenching. The board bailed on me and my vision.”

Regardless, those were the good times. HSX moved into a former Herb Ritts Gallery office in West Hollywood that it thoroughly revamped. Andy Kaplan, a top Sony television executive, was installed as CEO. They hooked up that giant ticker. They threw lavish million-dollar parties, became fixtures at film festivals and blew still more millions on advertising. Asked what the company spent its $40 million on that could not be considered promotion, Keiser, who still holds onto his dream of someday democratizing media finance, shrugs: “Nothing I can think of.”

By then HSX was losing about $700,000 a month. By mid-2000, it had burned through $23 million in VC funding raised the previous year. And after the market crash eliminated the IPO exit strategy, HSX investors tried a back-door exit, linking up with a publicly traded pink-sheet company called Predict-It, another struggling fantasy market. On paper, the two companies could together claim revenue of about $10 million, but that figure was window dressing at best. Not long after plans for the pending merger were filed with regulators, Keiser and Burns checked out of the deal. Subsequently, the company’s 70 investors also backed out, refusing to put up more money to float the venture.

“Everyone was struggling, and we were all trying to climb onto something that would keep us afloat,” says former Predict-It CEO Andrew Merkatz. He has since formed a merchant banking firm, CountryRoad Capital. “Two drowning bodies grabbing onto each other does not make for a good ending.”

Then suddenly, in May 2001, with the Scandinavian Broadcast Service in control of the assets and apparently willing to write the last check, Cantor Fitzgerald stepped in to acquire the company.

“We had launched a sports-spread betting program in 2001 and had interest in diversifying what we offered, and they were cheap and not making money,” says Paul Galbraith, a spokesman for the Cantor Index in London. “But in the end, we never found a market for movie spreads in the U.K. With movies, there were just a couple of people who really knew what they were doing, and they had a lot more time on their hands for the entertainment futures market than our market makers did.”

Slight, presumably, intended.

To be fair, today’s HSX is, if nothing else, highly liquid for a prediction market. Since its inception 12 years ago, the exchange has created 1.7 million trading accounts and developed a sizable, cultlike following among movie fans. On an average day, 20,000 traders on the HSX will swap 2.5 billion shares in more than 40,000 trades, volume that dwarfs rival markets such as the Iowa Electronics Market and HedgeStreet. Compared to In-Trade, an Irish prediction exchange that offers markets in politics, commodities and other products, HSX is the NYSE: In seven years, In-Trade has created just 65,000 accounts, 12,000 of them active.

Still, there is one key difference that separates HSX from its competitors’ sites: money. Traders on the Iowa Exchange, In-Trade and HedgeStreet are all investing with actual currency. At HSX, the $9.9 billion in “Hollywood Dollars” accumulated by the current leader are about as valuable as a photocopy of a dollar bill. Meanwhile, the number of active accounts at HSX.com has dropped to 650,000, an audience too small for Nielsen Net Media to bother tracking.

Keiser (who voted his 10 million shares “no” to the sale) now insists that Cantor has not made good on the deal — which the firm made using eSpeed stock — leaving the original owners with nothing. He estimates the company has since spent close to $20 million developing the exchange software he created, but has not yet taken advantage of the asset the way everyone expected it to. A Cantor spokesman declined to comment on Keiser’s allegations.

The company does finally appear to be building on its prediction-market foothold: Earlier this year, it hired Andy Wing, formerly a Nielsen executive, to run a new division, Cantor Entertainment, with HSX as its centerpiece. Might HSX finally achieve legal exchange status? Consider that it took HedgeStreet two years to win its legal-exchange designation, then another 18 months to get it off the ground. Or that in 2005, In-Trade was fined and placed under tight restrictions regarding its U.S. activities, while the Iowa Exchange, a nonprofit and largely academic outfit, has been granted a “no action” waiver from the CFTC so it can operate in the U.S. without penalty.

As for the founders? Michael Burns, it is safe to say, landed on his feet. Having spent a decade brokering broadcast deals as an investment banker for Prudential Securities’ Los Angeles office, Burns had maintained strong ties with the entertainment business and was helping to build the independent studio Lions Gate Entertainment even as he was working on the HSX venture. Today, Burns is Lions Gate’s CEO.

Keiser, meanwhile, is still relishing his role as a rebel. Leaving both Wall Street and Hollywood in the dust, he spends most of his time in Paris producing films for the Al-Jazeera news network and heading up his latest venture, Kinooga.com. Kinooga, as Keiser explains, is the offspring of his original idea, providing a venue for individual buyers to finance independent media projects. “We’re creating a funding mechanism for independent producers to compete with the entrenched entertainment cartel,” he says. “This is an unregulated piece of business that gives many, many, many more people access to funds.”

As for Keiser and Burns’s original dream, that online Hollywood market that would turn John Q. Public into a mouse-wielding movie mogul? Consider that based on the $1 commissions now being earned by HedgeStreet, a trading business even merely the size of HSX today would generate $30 million a year in revenue. Cantor’s own spread-betting business in the U.K. is now earning $70 million in annual revenue, according to Galbraith. “Any way you slice it, the trading business far outstrips selling research,” Burns says. “I’d be very surprised if a futures exchange is not the business Cantor wants to get into. It just doesn’t make sense otherwise.”

This final scene, it seems, has yet to be written — for both the future of online futures markets and one trader’s crazy dream that simply refuses to die.

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Note: I have permission from the publisher to re-publish this news article. Thanks to Trader Daily. (Contact me.)

The original news article: Trader Daily ($$$)

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NEXT: Cantor Exchange

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Since its founding in 1996 [by Max Keiser and Michael Burns], HSX has had 1.7 million registered traders, according to Costakis. Each day, between 15,000 and 20,000 people use the site, racking up some 50,000 trades, he added.

Rock around the bunker… Rock around, rock around… Rock around the bunker… Rock around, rock around… Rock around the bunker… Rock around, rock around…

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CHRONOLOGY & HISTORY: Prediction Markets Timeline

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Feel free to post a comment or contact me, and I’ll correct or add a factoid. Thanks.

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#1. Historical Prediction Markets

According to Paul Rhode and Koleman Strumpf, prediction markets almost never got it wrong forecasting the 19 presidential elections that took place from 1868 to 1940. (PDF)

#2. The three Iowa Electronic Markets founders (Robert Forsythe, Forrest Nelson and George Neumann)

“We ran our first market in 1988. We didn’t have regulatory approval at that point so we were restricted solely to the University of Iowa community. We had under 200 traders and under $5,000.” – [Robert Forsythe - PDF file]

- [CFTC's no-action letter to the IEM - 1992 - PDF file]

- [CFTC's no-action letter to the IEM - 1993 - PDF file]

#3. Robin Hanson

a) Robin Hanson set up and ran a rudimentary prediction exchange (a market board, PPT file) in January 24, 1989. The outcome to predict was the name of the winner of a Poker party.

b) Until evidence of the contrary, it seems that Robin Hanson was the first to set up and run a corporate prediction exchange —at Xanadu, Inc., in April 1989. See: A 1990 Corporate Prediction Market + Anonymity is important for employees trading on internal prediction markets.

Robin Hanson: “I started a market at Xanadu on cold fusion in April 1989. In May 1990, I started a market there on whether their product would be delivered before Deng died.”

c) Until evidence of the contrary, it seems that Robin Hanson was the first to set up and run a bunch of imagination-based prediction markets. See the Murder Mystery Evening described by Barney Pell —circa June 8, 1989.

d) Until evidence of the contrary, it seems that Robin Hanson was the first to write a paper on prediction markets created and existing primarily because of the information in their prices (as opposed to markets created primarily for speculation and hedging).

Could Gambling Save Science? – (Reply to Comments) – by Robin Hanson – 1990-07-00
Market-Based Foresight: a Proposal – by Robin Hanson – 1990-10-30
Idea Futures: Encouraging an Honest Consensus – (PDF) – by Robin Hanson – 1992-11-00

e) Robin Hanson godfathered the Foresight Exchange (created in 1994) and NewsFutures (created in 2000).

f) Robin Hanson invented the concepts of decision markets (PDF) and decision-aid markets.

g) Robin Hanson invented a new market design (for the 2000-2003′s Policy Analysis Market), the Market Scoring Rules, a mix between CDA and Scoring Rules —now in use for most enterprise prediction markets and public, play-money prediction exchanges. Note that MSR is mainly used in a one-dimension version, but many researchers are interested in its combinatorial version.

#4. Other Pioneering Public Prediction Exchanges (Betting Exchanges, Event Derivative Exchanges) and Inventors/Innovators/Entrepreneurs

a) The Foresight Exchange was founded on September 22, 1994 by Ken Kittlitz, Sean Morgan, Mark James, Greg James, David McFadzean and Duane Hewitt. The Foresight Exchange is a play-money prediction exchange (betting exchange) managed by an open group of volunteers. It pioneered user-created and user-managed, play-money prediction markets. Any person can join the Foresight Exchange and interact with the rest of the Web-based organization. An independent judge (independent from the owner of the claim) should be appointed among the volunteers. [Thus, it's not "DYI prediction markets".]

b) The Hollywood Stock Exchange was founded on April 12, 1996, by Max Keiser and Michael Burns. See the patent for the Virtual Specialist. For more info, see: Is HSX the “longest continuously operating prediction market”??? – REDUX

c) BetFair was founded in 1999 by Andrew Black and Edward Wray, and was launched in England in June 2000. As of today, BetFair is the world’s biggest prediction exchange (betting exchange, event derivative exchange).

d) NewsFutures was founded in March 2000 and launched in September 2000 in France and in April 2001 in the US by Emile Servan-Shreiber and Maurice Balick. See: NewsFutures Timeline. NewsFutures was the first exchange to let people buy or sell contracts for each side of a binary-outcome event. The advantage of this design is that it avoids the need for “shorting”, a notion that tends to confuse novice traders. NewsFutures later extend that approach to deal with n-ary outcome events while implementing automatic arbitrage.

e) TradeSports was launched in Ireland in 2002 by John Delaney. InTrade was later purchased and became a non-sports prediction exchange (betting exchange). As of today, InTrade is the biggest betting exchange on the North-American market —where betting exchanges are still illegal. As for TradeSports, it closed at the end of 2008, alas.

#5. The Policy Analysis Market Brouhaha

a) Robin Hanson was the main economist behind the 2000–2003 US DoD’s DARPA’s IAO’s FutureMAP–Policy Analysis Market project. (For this project, Robin Hanson invented a new market design, the Market Scoring Rules.) On July 28, 2003, two Democratic US Senators called for the termination of PAM, the the big media gave airtime to their arguments, and the US DOD quickly ended the IAO’s FutureMAP program.

b) The second branch of the 2000–2003 US DoD’s DARPA’s IAO’s FutureMAP program was handled by the Iowa Electronic Markets and was intended to predict the SARS pandemic. (This project later gave birth to IEM’s Influenza Prediction Market.)

#6. James Surowiecki’s The Wisdom Of Crowds

a) James Surowiecki’s book, The Wisdom Of Crowds, was published in 2004.

b) Impact of The Wisdom Of Crowds.

#7. Recent Public Prediction Exchanges (Betting Exchanges, Event Derivative Exchanges) and Inventors/Innovators/Entrepreneurs

a) US-based and US-regulated HedgeStreet was launched in 2004 by John Nafeh, Russell Andersson, and Ursula Burger. A designated contract market (DCM) and a registered derivatives clearing organization (DCO), HedgeStreet is subject to regulatory oversight by the Commodity Futures Trading Commission (CFTC). In November 2006, IG Group bought HedgeStreet for $6 million.

b) Inkling Markets was launched in March 2006 and co-pioneered (with CrowdIQ, which later bellied up) the concept of DIY, play-money prediction markets.

c) In September 2006, TradeSports-InTrade was the first prediction exchange (betting exchange, event futures exchange) to apply Chris Masse’s concept of X Groups. See: TradeSports-InTrade prediction markets on Bush approval ratings.

d) HubDub was launched in early 2008 and is the second most popular play-money prediction exchange, behind HSX.

#8. Enterprise Prediction Markets

a) Until evidence of the contrary, it seems that Robin Hanson was the first to set up and run a corporate prediction exchange —at Xanadu, Inc., in April 1989. See: A 1990 Corporate Prediction Market + Anonymity is important for employees trading on internal prediction markets.

b) In the 1996–1999 period, HP ran a series of internal prediction markets to forecast the sales of its printers.

c) Eli Lilly sponsored 10 public, industry-level prediction markets in April 2003 (on the NewsFutures prediction exchange).

d) Eli Lilly began using internal prediction markets in February 2004 (powered by NewsFutures).

e) Google‘s Bo Cowgill published about their use of internal prediction markets in October 2005.

f) Since then, many companies selling software services for enterprise prediction markets have been created.

#9. Disputes Between Traders And Exchanges

a) The scandal of the North Korean Missile prediction market that erupted in July 2006 is, as of today, the biggest scandal that rocked the field of prediction markets.

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Hollywood Stock Exchange entry at Wikipedia:

The Hollywood Stock Exchange, or HSX, is a web-based, multiplayer game in which players use simulated money to buy and sell “shares” of actors, directors, upcoming films, and film-related options. [...]

HSX is a play-money prediction exchange… and a PM software firm.

Wikipedia does mention that HSX is owned by Cantor Fitzgerald, but does not mention that it was founded in 1996 by Max Keiser and Michael Burns.

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Max Keiser entry at Wikipedia:

Max Keiser is an inventor, a podcaster, broadcaster and journalist. [...] [Max] Keiser invented the virtual specialist technology and co-founded the Hollywood Stock Exchange. [...]

As the New York Times pointed out, the Hollywood Stock Exchange (HSX) is unique amongst virtual markets for more closely mimicking the real markets. Max’s design for moviestocks, starbonds, virtual mutual funds, and the virtual currency whose value is controlled by a virtual central bank has been awarded three patents . HSX is the world’s first patented prediction market. While co-chairman of HSX, Keiser presented a weekly segment, “Battle at the Box Office,” for NBC’s Access Hollywood. Keiser’s segment caused the sort of controversy that often follows him when the major Hollywood studios threatened to boycott NBC if they continued to allow Keiser to predict that weekend’s box office. [...]

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And now, The Question Of The Day: Is Max Keiser “notable” enough to warrant a Wikipedia entry under his name? [Here's Wikipedia's "notability guideline".]

Here’s what I wrote to the Wikipedians:

Hi, my name is Chris Masse, the editor of Midas Oracle, a group blog on prediction markets ( http://www.midasoracle.org/ ). In my judgment, the “Max Keiser” entry on Wikipedia is useful because it gives additional information about the first version of the Holllywood Stock Exchange, which seems to be a more ambitious endeavor that what we have right now. And as you all know, the Hollywood Stock Exchange is the world’s most popular play-money prediction exchange. Economists who have been studying both real-money and play-money prediction markets say that their their relative accuracy is socially valuable. See the works from Robin Hanson, Justin Wolfers, Eric Zitzewitz, Koleman Strumpf, Paul Tetlock, and others. So for all these reasons, I vote to keep the “Max Keiser” entry.

I made the mistake of not logging in into Wikipedia before making this comment and here’s what a Wikipedian wrote 2 seconds after I saved the comment:

Note: The above comment was left by an IP address and it he/she seems to have a conflict of interest, I suggest you read WP:USEFUL and WP:ILIKEIT. All the best. The Sunshine Man 17:36, 22 June 2007 (UTC)

So I went reading the “Conflict Of Interest” page:

A Wikipedia conflict of interest (COI) is an incompatibility between the aim of Wikipedia, which is to produce a neutral encyclopedia, and the aims of an individual editor. COI editing involves contributing to Wikipedia in order to promote yourself or the interests of other individuals, companies, or groups. Where an editor must forego advancing the aims of Wikipedia in order to advance outside interests, he stands in a conflict of interest. COI edits are strongly discouraged. When they cause disruption to the encyclopedia in the opinion of an uninvolved administrator, they may lead to accounts being blocked and embarrassment for the individuals and groups who were being promoted.

Does Chris Masse have a “conflict of interest” promoting prediction market stuff on Wikipedia???

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Previous: All the Midas Oracle blog posts mentioning Max Keiser.

External Resource: From the promotional documentation of Kinooga CEO Max Keiser:

Max Keiser launched his career working as a registered securities brokers for some of the largest and most prestigious financial houses in the world, including Shearson Lehman, Alex Brown & Sons and Oppenheimer & Co. His tenure on Wall Street, at the beginning of the longest bull market in history, was a time of financial innovation that would change the foundations of markets and finance around the world. From junk bonds to leveraged buyouts, new ideas were being applied to old financial formulae.

In late 1995, at a meeting at the Coffee Bean & Tea Leaf on Sunset Blvd. West Hollywood California, Max Keiser pitched Michael Burns, a colleague from Wall Street who had moved to LA, on the idea of trading futures contracts based on Hollywood Box Office returns. To test the idea, a virtual exchange, the Hollywood Stock Exchange was built and launched in February of 1996. The site’s immediate success required a more robust, scalable technology to be built. Cambridge Technology Partners was hired for this task. Backed by Burn’s investment, Keiser, with input from Burns, invented the Virtual Specialist Technology; (U.S. pat. no. 5950176) a system for ‘making markets’ with virtual securities whose value is tied to a virtual currency, the Hollywood Dollar. A Virtual SEC, Reserve Bank, and Treasury were also created to manage and regulate this new economy. Esther Dyson’s Release 1.0 hailed the invention as a breakthrough in technologically and economics. It is widely understood that the Virtual Specialist Technology helped define an emerging school of economics that has, as its basis, Robert Metcalfe’s ‘network effect,’ or ‘increased returns economics.’ [...]

External Resource: Max Keiser

NEXT: WIKIPEDIA TERMINATES MAX KEISER.

When Max Keiser launched the Hollywood Stock Exchange, he had personified all aspects of the economy with characters: there was MaxBroker (Max Keiser), MacDaddy as the banker (Michael Burns), Dr. Zeros as the fed chairman (Max Keiser), the SEC chair (Denise Fine), and a pair of punk lesbian sisters [!??] who personified the buy/sell functionality of the virtual specialist. All these functionalities were later ripped out [*] —VC’s order, under the advice, it is rumored, from a guy named Tom Freston (MTV), who later interviewed for the CEO post at HSX during the time the company was in pre-IPO stage at Bear Stearns…

[*] It cost over 900K to build the HSX software!

Previous: HSX co-founder Max Keiser on a quest to reinvent economics + FINALLY, THE HOLLYWOOD STOCK EXCHANGE ACKNOWLEDGES ITS TWO FOUNDERS, MAX KEISER AND MICHAEL BURNS. + Why the Hollywood Stock Exchange was sold to Cantor Fitzerald. – An insider’s account. + Hollywood Stock Exchange’s Alex Costakis makes historical mistake, TOO.

Hollywood Stock Exchange (HSX.com) Traders correctly picked 7 out of 8 Top Category Oscar Winners to continue its stellar record.
Los Angeles, California, February 26, 2007 -

Hollywood Stock Exchange (HSX), announced a spectacular 88% success rate for picking this year’s Oscar winners. The world’s longest continuously operating commercial prediction market and popular online game once again proved the accuracy of virtual stock markets.

This year Traders hit 7 of 8 in predicting the winners in the top categories. Traders scored a perfect 100% in the Lead Acting, Directing, Writing and Best Picture fields continuing their outstanding trend in picking nominees and Award winners. Last year HSX Traders also hit the 7 out of 8 mark, and the year prior a perfect 8 out of 8 victory. This brings HSX’s three year cumulative average to 92%.

This year HSX added a fun feature to our Awards Options. Best Feature Animation was not a part of our NominOption® series, but debuted during the Awards Options. Traders were given the chance to predict which of the three nominated animated films would win Oscar gold. They went with the popular Cars, which was edged out last night by Happy Feet.

“When it comes to movies, the collective wisdom of Hollywood Stock Exchange traders is unmatched”, said Alex Costakis, Managing Director. “HSX Traders are savvy, entertainment consumers, with a keen eye for not only predicting Oscar winners, but also for estimating how well a movie will do in box office throughout the year. Think of it as a virtual focus group. The Hollywood Stock Exchange is a proven prediction market technology that empowers individuals to influence Hollywood by making their opinions known by actively participating in this dynamic trading environment”.

Since its establishment in 1996, HSX has registered over 1.6 million users. HSX offers consumers the opportunity to buy and sell virtual shares of films and actors. HSX also offers unique Trading opportunities surrounding special Award events and consistently beats most polls and industry pundits.

- HSX – Oscars Nominations Prediction Markets – Accuracy

- Oscars 2007 – TradeSports-InTrade – Bingo!

- Oscars 2007 – Hollywood Stock Exchange – Bingo!

- Debunking HSX Alex Costakis’ conspiracy theory

- Hollywood Stock Exchange’s Alex Costakis makes historical mistake, TOO.

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Congrats to the two HSX co-founders (Max Keiser and Michael Burns) and congrats to the current managers (Alex Costakis and Amy Lamare), and all the other people at HSX.

One suggestion to Amy Lamare and the other people managing the HSX site: Why don’t you publish the entirety of your interesting spin output in your site feed (a.k.a. RSS feed)? Alex Costakis complained about ABC7 and their supposed flawed reporting. Well, since you have a large number of registered users, maybe you could inform them directly about the HSX performance for the 2007 Oscars. I’m a subscriber of the HSX site feed, and I haven’t seen your P.R. output there, yet. And why not a link to this P.R. output from the HSX frontpage?

If you google the sentence, “The Press release is dead” (with the quotes), you’ll find interesting ideas and suggestions pertaining to internet marketing.

Max Keiser launched his career working as a registered securities brokers for some of the largest and most prestigious financial houses in the world, including Shearson Lehman, Alex Brown & Sons and Oppenheimer & Co. His tenure on Wall Street, at the beginning of the longest bull market in history, was a time of financial innovation that would change the foundations of markets and finance around the world. From junk bonds to leveraged buyouts, new ideas were being applied to old financial formulae.

In late 1995, at a meeting at the Coffee Bean & Tea Leaf on Sunset Blvd. West Hollywood California, Max Keiser pitched Michael Burns, a colleague from Wall Street who had moved to LA, on the idea of trading futures contracts based on Hollywood Box Office returns. To test the idea, a virtual exchange, the Hollywood Stock Exchange was built and launched in February of 1996. The site’s immediate success required a more robust, scalable technology to be built. Cambridge Technology Partners was hired for this task. Backed by Burn’s investment, Keiser, with input from Burns, invented the Virtual Specialist Technology; (U.S. pat. no. 5950176) a system for ‘making markets’ with virtual securities whose value is tied to a virtual currency, the Hollywood Dollar. A Virtual SEC, Reserve Bank, and Treasury were also created to manage and regulate this new economy [*]. Esther Dyson’s Release 1.0 hailed the invention as a breakthrough in technologically and economics. It is widely understood that the Virtual Specialist Technology helped define an emerging school of economics that has, as its basis, Robert Metcalfe’s ‘network effect,’ or ‘increased returns economics.’

Keiser went on to test this theories in the field of increased returns economics applying the idea to activism in the creation of Karma Banque which attempts to monetize dissent and re-balance the price discovery mechanism of stocks in companies who are the subject of anti-globalization campaigns. By targeting only companies vulnerable to a boycott, that is, where stocks are trading at a high multiple of sales, activists can attract the attention of professional speculators and hedge fund managers who ‘attack’ the stock with negative bets such as short-sales that drive the stock price down. This gives, in effect, activists, access to the trillion dollar plus hedge fund industry as allies in the fight for greater corporate social responsibility. A company is legally bound to defend its stock price whereas it is not legally bound to behave responsibly. By depriving a company of capital activists, working with hedge funds, force risks that have been ‘externalized’ off a company’s balance back onto that company’s balance sheet. Not responding to this and the agenda of the activists then becomes a question of whether or not the company is ignoring its fiduciary responsibility, a transgression that no CEO or board member can ignore without incurring substantial regulatory risk.

Keiser is currently launching a beta version of Kinooga – a patent-pending technology for embedding fractional copyright within purchases of copyrighted material via an Allied Auctionâ„¢ that he hopes will disrupt the current music and film copyright monopolies that have tried to impede creativity and criminalize consumption. “My hope with Kinooga is to get the ball rolling and repeal the past few decades of copyright law that have done incredible damage to both the vitality and security of America.” Keisersays.

Regarding so-called “prediction markets.” Keiser believes the term is a misnomer. There is no such thing as a prediction market for the reasons Keiser and other professionals and academics in the field have noted. The phrase, ‘prediction markets’ used by sites such as HSX is a marketing phrase that should not be taken literally.

Keiser has gone on the record as an ardent critique of the Pentagon’s ‘Policy Analysis Market’ as iterated by John Poindexter. Black box thinking’ and a belief in the market’s ability to ‘tell the future,’ according to Keiser, is nothing short of propaganda designed to shift accountability of U.S. foreign policy to something called ‘the market’ in much the same was as environmental externalities generated by companies like ExxonMobil’s carbon emissions are positioned as the inevitable consequences of ‘market ‘forces.’ We as citizens should not be asked to be subservient to ‘market forces’ that transfer risk from corporations to the public via markets that are routinely manipulated and run, by and large, on inside information; a topic explored in one of Mr. Keiser’s upcoming films for Al Jazeera English, “Are the Markets Rigged” the follow up to his very well received Al Jazeera English film; “Death of the Dollar.”

[*] Some design specs that were incorporated in HSX V.1 of 1997 including the treasury, reserve bank and SEC functions were ripped out as part of a downsizing process that gave birth to HSX V.2 of late ’97 ’98.

Previous: Why the Hollywood Stock Exchange was sold to Cantor Fitzerald. – An insider’s account. + FINALLY, THE HOLLYWOOD STOCK EXCHANGE ACKNOWLEDGES ITS TWO FOUNDERS, MAX KEISER AND MICHAEL BURNS.

I just saw your post about HSX nomination forecast accuracy. Chris, good one. But first I think the congratulations really should be directed to our traders. It’s their collective wisdom that generates our predictions. HSX is the facilitator, they are the brain power. And, beyond that, your point is well taken. The visionary founders of this innovative website should be listed. We will correct that. Happy Oscar Night.

FANTASTIC. We should reward entrepreneurs for wealth and job creation.

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