Can Twitter Predict the Next Hollywood Blockbuster?

Tapping into the wisdom of the crowds to forecast future trends has served prediction markets well for years, but Twitter might be even more effective than even the biggest and most widely used market, the Hollywood Stock Exchange. In a recent study, watching tweets among Twitter users allowed HP Labs researchers to predict box office figures better than the Hollywood Stock Exchange.

A HP study kept track of movie mentions on among 2.9 million tweets from 1.2 million users for three months. Their sample focus included 24 movies such as Avatar and Twilight: New Moon.

For opening weekend, their computer model monitored the rate of tweets near a movie's release date and also factored in the number of theaters showing the flick. That allowed the model to predict the opening weekend revenues with 97.3 percent accuracy, compared to the Hollywood Stock Exchange's 96.5 percent accuracy.

For the second weekend, the model examined both tweet rates and the ratio of positive to negative tweets. That different approach reflects second-weekend performance success based on word-of-mouth, rather than opening-weekend performance buzz. Again, the model delivered quite splendidly with 94 percent accuracy.

There's also a good opportunity here for savvy prediction market players, if they can apply a bit of Twitter analysis to how they play the Hollywood Stock Exchange.

Update:

4/21/10 - A Senate committee approved a proposed ban on trading futures relating to the box-office performance of motion pictures.

The Senate Agricultural Committee kept the provision in that would exclude box-office futures as a commodity, thus disallowing them from being traded on the open market. The provision is part of the Wall Street Transparency and Accountability Act, which has yet to be voted on by the full Senate and the House.

Within the last week, the Commodity Futures Trading Commission has approved two entities as "contract markets" -- Media Derivatives and Cantor Futures -- but has yet to approve the trading of box-office futures.

The two groups wanted to start trading box-office futures in an effort to share the risk on Hollywood films, which often run into the hundreds of millions of dollars in production costs.

But lawmakers such as Agriculture Committee Chairwoman Sen. Blanche Lincoln, D-Ark., and Hollywood studios have come out against the idea. The Motion Picture Association of America, which represents major studios, says that films cannot be placed in the same categories as other commodities like wheat because there are no interests on the negative side of the contracts.

In essence, the group says that film investments are more like stocks, and if an investor shorts box-office futures that could have an adverse effect on a film's performance in theaters prior to the public getting a look at the product.

"We thank Chairman Lincoln and the agricultural committee for seeking to put an end to plans that would allow wagering on box-office futures," Bob Pisano, interim MPAA chief executive, said in a prepared statement. "We believe these plans are based on a faulty understanding of the film business and could cause real financial harm to both the film industry and other Americans drawn in by an online gaming platform that could be easily manipulated."