Logging On to Play the Market, Hollywood-Style

Hollywood Stock Exchange, creator of an Internet game that blends the hype of Hollywood and the energy of Wall Street, is in the midst of raising $10 million in venture capital and plans to go public with a stock offering, possibly by the end of the year.

HSX offers a chance for anyone to play like an entertainment mogul, buying and selling securities in movies and movie stars. The site lists more than 400 movies as “stocks” and 400 stars as “bonds.”

The site was started with $500,000 in 1996 by Max Keiser, 39, a screenwriter, movie fan and retired stockbroker, and Michael Burns, 40, a managing director at Prudential Securities Group Inc. HSX has already raised more than $5 million in venture funds, including a sum from Philadelphia’s Keystone Ventures, and has recently expanded its Santa Monica-based operation.

The site taps into people’s desire to be wheeler-dealers, taking risks on celebrities and the movies in which they star in an effort to build the largest “investment portfolio.” It also offers gossip columns and tracks each investor’s growing or dwindling portfolio of celebrity securities.

There is no charge to play the game. Subscribers can sign on at https://www.hsx.com and receive 2 million “Hollywood dollars.” That money can be used to invest in a list of movies in development or actors through “MovieStocks” or “StarBonds.” Special features are sometimes offered, such as “Oscar Options” (bets on who will win) or “Ellen DeGeneres Coming Out Warrants” (bets on the episode’s viewership total).

HSX recently added “short selling” and other more complicated trading techniques for more sophisticated players.

The site has nearly 200,000 registered traders, and about 300 million shares trade daily, roughly a third of the daily volume of the New York Stock Exchange. Volume has spiked as high as 1 billion shares a day at peak times, such as the opening weekend of the movie “Godzilla.”

HSX keeps track of opening-weekend and accumulated box-office revenue, which in part determines the trading price of a movie or star. But other factors, such as bad news from the set, or a star’s marriage, divorce or stint in rehab, can also affect share prices.

The recent death of legendary director Stanley Kubrick--known for classics such as “2001” and “A Clockwork Orange”--posed a dilemma for HSX operators.

“How do we handle the death of a bond?” Keiser said. “Do we call him in at zero?”

Some wanted the rules to be revised and for Kubrick’s bond to be delisted at the last trade, rather than at zero. But Keiser and crew decided to stick to policy and the bond was delisted at zero value.

Oscar wins and losses affected several securities, though most had moved up on anticipation of the results. On the Friday before the Oscars, actor-director Roberto Benigni was trading at $1,321 a share, but last week his price climbed to $1,367. Despite Steven Spielberg’s victory for directing, his stock dipped to $3,566, from $3,577, because his heavily favored film “Saving Private Ryan” lost in the best-picture race.

The site has its own “Securities and Exchange Commission,” the H-SEC, run by character “Denise Fine” (she levies fines on rule-breaking traders) and its own “Federal Reserve,” run by “Dr. Zeros” (who can change interest rates). Some participants have set up their own sites as economists or analysts for HSX, and one recently began offering its services as an “investment advisor” to players, charging $1 in real money for every $1 million of virtual money a portfolio rises.

“We’ve become a real working economy here, but on a smaller scale. It’s like a Faberge egg and quite beautiful,” Keiser said. “It’s the economy in a petri dish.”

HSX, though not profitable, gets revenue through advertising on the site and by selling subscriber lists to the movie industry.

The company plans to expand into more traditional media, with such projects as a half-hour TV show. Envisioned as a sort of “Entertainment Tonight” meets CNBC, the show would update the best- or worst-performing movie or star on a daily basis.

It also hopes to be more of a research source for movie studios, which could try out story ideas on game players.

“I liked the fact that it has a multiple revenue model: e-commerce, market research and advertising,” said Peter Ligeti, a general manager with investor Keystone. “Market research for movies currently comes from traditional methods--phones, people with clipboards. This company offers a multi-thousand-member continuous focus group.”

HSX President David Herman, 32, who has a background in the technology sector, said that as a neutral player in the entertainment world, the company will be a useful research source for studios, producers and others.

But Gordon Paddison, director of interactive marketing for New Line Cinema, expressed doubts.

“It’s representative of an online demographic. It’s not going to help us out in Idaho,” he said.

Still, the exchange is increasingly useful to the studios--and to actors such as Alec Baldwin, who regularly checks out the site to keep track of his shares.

“It’s good for seating buzz--that’s what it’s about,” Paddison said. “They are an interesting hybrid. Marrying the concept of the volatility of the [stock] market to the volatility of the [film] market has a good personality to it. We trade in hype and so do they.”

Investors who win big can use their “Hollywood dollars” as currency for items in the HSX company store.

And occasionally, they get real cash. In February, Curtis Edmonds, a Texas lawyer and film buff, auctioned off his fantasy portfolio totaling more than 130 million “Hollywood dollars” on the EBay Web site for $1,050, but the buyer never paid. In March, Edmonds resold it for $31.

While the site has many loyal fans, some users said they have stopped playing because of technological glitches, such as prices not being updated or securities not being delisted fast enough.

Keiser said HSX has rolled out a new version of the exchange that updates its technology to handle more volume; he said the company is working continuously to improve the site.

Keiser, a native of Westchester County, N.Y., who studied theater in college, came up with the idea for HSX after his experience on Wall Street as a retail trader in the 1980s. “Securitization” of nearly every commodity was running rampant.

“It was becoming this huge Kabuki theater,” he said.

He remembers that one day before a meeting he laughingly suggested that a Swiss cheese sandwich could be “commoditized” and sold for “lunar dollars.”

Several years later, securitizing Hollywood didn’t seem like such a stretch.

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Debora Vrana covers investment banking and the securities industry for The Times. She can be reached by e-mail at debora.vrana@latimes.com.