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Release: Immediate

MBA 'movie moguls' trade in electronic movie market

IOWA CITY, Iowa -- Budding movie moguls in a University of Iowa marketing class are speculating on the box-office success of two pre-holiday movies, "I Still Know What You Did Last Summer," and "Enemy of the State."

Tom Gruca, associate professor of marketing at UI, is using the real-time online technology of the UI business school's Iowa Electronic Markets (IEM) to help his MBA marketing management class gain practical experience in new product forecasting and financial trading.

Gruca's students invest in a real-time, real money, web-based market, trading in futures contracts where eventual payoff depends on the movies' four-week box office receipts as measured by AC Nielsen EDI. To make their predictions about the movies' success, students gain experience in marketing analysis and forecasting by gleaning data from movie industry web sites.

"The students get very competitive. This assignment is not just for a grade--it's for real money. The movie market rewards students directly for the quality of their work," Gruca said. "The feedback is direct to the student and not filtered through the opinion of the instructor."

"I Still Know What You Did Last Summer" a horror movie sequel, took in $16.5 million after it opened Nov. 13, putting it in second place in this past weekend's box office receipts. "Enemy of the State," an action movie starring Will Smith and Gene Hackman, opens Nov. 20.

Trading began Nov. 9 and is based on box office receipts in the first four weeks of release. For example, futures contracts for "I Still Know" are for box office receipts of $0-$20 million, $20-$35 million, $35-$50 million, or more than $50 million. If the trader's projection is right when the market ends on Dec. 10, the payoff is $1 per contract; otherwise there's no payout in the all-or-nothing market. The MBA students can use their own money or use funds supplied by the School of Management for the contracts. Most invest about $10 in the markets, Gruca said.

So far, IEM traders think "I Still Know" will make between $35 million and $50 million, while "Enemy of the State" will make more than $70 million.

"Given the high development cost and short life cycle of most movies, forecasting their success is a very challenging application of the students' marketing analysis skills," Gruca added. "Their decisions have actual profit/loss payoffs."

Started in 1988 at the UI College of Business Administration, the IEM is an application of the real-time trading technology futures markets developed at the UI. The IEM's 1996 presidential election market received international media attention as an accurate alternative to traditional polls. Since then, the UI School of Business has conducted several other political and business markets.

Last spring Gruca's classes traded in IEM movie futures markets for two science fiction thrillers, "Mercury Rising" and "Lost in Space." Gruca added that his movie choices are based on their probable appeal to college students who trade in the IEM.

For more information, contact Gruca at (319) 335-0946 or visit the IEM web site at http://www.biz.uiowa.edu/iem/

11/20/98