Fun-Play Site Shows Hollywood the Way to Success

Hollywood Stock Exchange, a play-for-fun website where users trade virtual stocks based on the movie and music industries, has become a valuable source of information for both the betting and entertainment industries.

That fact is as much evidenced by Cantor Fitzgerald's purchase of the site last May as by the company's growing consumer research business.

Brian Dearth, HSX's chief executive, said users of the site are given $2 million in virtual money called Hollywood dollars when they establish an account, and that they can buy and sell virtual securities in the form of Hollywood movies, music albums and actors and actresses.

"It's a way to test your knowledge of, in this case, the music and film industry, against a whole bunch of other people, in the form of a stock market," he said.

The user database for HSX numbers comprises 800,000 people, all of which are surveyed for demographic information. People log on to play the exchange, and in doing so they supply HSX with not only advertising revenue, but also a gold mine of data on the entertainment preferences of various segments of the population.

The database apparently caught the eye of Cantor Fitzgerald, a U.S.-based trading company whose British subsidiary, Cantor Index, is a spread-betting firm. Dearth said two months after the acquisition; Cantor Index began offering online and telephone spread betting on major Hollywood movies to U.K. residents. He said the move was fueled largely by HSX's knowledge of entertainment and ability to figure out how to open and maintain the spreads.

"Cantor Index wanted to make sure that the UK traders of HSX could not in fact apply their knowledge to a real bet," he said.

More than 17,000 HSX players are in the United Kingdom. Dearth said for now all U.K. spread betting based on HSX's virtual exchange will originate from the Cantor Index site as opposed to and English version of hsx.com. As for the way the site works in the United States, Dearth said the play is strictly for fun.

"We are very, very sensitive to the anti-gaming laws in the United States, and make sure that we abide by all of the states' anti-gaming statutes," he said. "Having said that, we've been fairly successful at coming up with ways of monetizing our traders."

One such way is through its consumer research segment, which the five-year-old company launched in April.

"We have a research business where we allow the traders to do what they normally do, meaning make lots and lots of trades," Dearth said. "On any given day you've got sometimes close to 30,000 unique traders making almost 50,000 trades. That's a lot of information."

Research was always in the business plan, Dearth said. To do so, the company needed to construct an extensive data warehouse in order to format the information in a useful manner.

Dearth said that so far a handful of companies have signed up - companies ranging from movie studios to packaged goods companies. The data allow them a window on what will be popular and what is doomed to fail, even if the movie hasn't been released yet.

"The really interesting thing about virtual stock markets for market research is that they actually overcome some of the methodological weaknesses of traditional research," Dearth said. "For one, they're very long lead. Right now, most traditional research wouldn't be focused on pictures coming out at Christmas, or even summer of 2002. But right now we can give you a pretty good look at what's going to happen in 2002."

The legal climate in the United States presently prevents the type of online spread-betting Cantor Index offers in Britain, but Dearth said he feels quite bullish about the prospect of HSX making a successful transition to offering real money betting.

"I'm convinced that we have all the elements to in fact flip a switch and become a very enticing and very popular gaming site should the laws yield in favor of doing that," he said.