While I predict that the vast majority of my columns will concern the HSX movie exchange, I figured that I would use this first one to discuss some ideas I have regarding the music exchange.

There are several questions that continually perplex every HSX player: What’s wrong with Max? How on Earth do StarBonds work? Why did I short BLAIR? and Why would anyone play the music exchange? When the idea of a music exchange was first floated, it seemed promising, but like the 8-track tape, the Clinton health-care proposal and that all-L2K-issue of Playgirl, it ended up as punch line. Still, I believe that the idea of a music exchange has potential, but it would mean that the current version would basically have to be scrapped and rebuilt. Here are my proposals:

The primary problem with the music exchange is that it isn’t fun. We find the movie exchange fun because it challenges us to predict how a feature film will be received by the American public. The music exchange is based on predicting how other HSX players feel about a given artist. Well, with all due respect to my fellow traders, who cares? The music exchange needs that certain “reality check” – some real data to measure share prices against. While several types of data could be used for this comparison, such as radio airplay, concert grosses, etc., the fairest would seem to be record sales. This is because every recording artist needs (by definition) to sell records, whether by download or in a tangible format. Plus, the other types of information run into problems with accuracy and relevance, particularly because artists from certain musical genres tend not to tour as much (e.g., rap and techno acts) or may not get much radio airplay (e.g., metal acts). Further, record sales data can be obtained fairly easily. A company called SoundScan provides official sales data to Billboard magazine and most record companies; this data is obtained from bar code scanners at thousands of record stores throughout the country. Unfortunately, SoundScan isn’t free, so to get timely info, HSX will probably have to pay for it (sorry, HSX.that’s the price of doing business) unless they can work out some other arrangement. And although SoundScan isn’t perfect (amazon.com, which has become a major retailer of records, does not report its sales to SoundScan), it is probably the best source available.

If we’re using record sales as the basis for the exchange, it should be noted that most record sales are reported as units sold, not dollars earned. As such, each H$ should represent a certain number of units sold.

I would recommend that a ratio of H$1 for each 10,000 units sold. This is because of the likely prices that would result from this ratio, i.e., the record for one-week sales is held by (hold on to your lunch) the Backstreet Boys’ “Millennium” album, which sold approximately 1.3 million units in its first week of release. This would translate into a price of H$130, not taking adjusts into account (more about adjusts later). I would recommend restructuring the securities offered on the music exchange to more closely resemble those available on the movie exchange. Artists would be traded like StarBonds, with a TAG-like rating based on the sales of past records. This seems reasonable since the value of an artist should be based on their work over a period of time – many artists have a huge first album, followed by what is known as the “sophomore slump” (i.e., a comparatively weak-selling second album). Does this poor selling record mean that the artist is worthless? Of course not. I suggest that the relevant period for averaging sales should be 5 years (as opposed to 3 years on the movie exchange) to account for the fact that artists usually release albums fairly rarely, especially compared to the frequency with which actors appear in films. Likewise, artists should receive a TAG-like rating after one album to address the same issue. As in the movie exchange, Artist bonds ratings’ would periodically adjust based on album sales. I’ll make a bid at this point for delisting deceased/defunct artists – I find the whole idea of trading them to be a bit macabre as well as pointless: based on the system outlined here, reissues would only end up bringing the artist’s TAG down over time.

Individual albums would be the stocks of the music exchange and would trade like MovieStocks. This is because of the relationship between H$ and units sold and the relative ease of establishing and predicting the values of shares in connection with adjusts (e.g., if you predict that an album will sell around 50,000 units in its first weeks of release, that translates into H$5, which you would multiply by the applicable multiplier below to determine what value should be attributed to the stock). Since many album titles are not known far in advance, they would be listed on the exchange based on the artist name and the number of albums previously released that artist (e.g., the Red Hot Chili Pepper’s eighth album would be traded as RHCP8). Album stocks would halt on Wednesdays since new albums are released to retail on Tuesday nights at midnight. Adjusts would occur the following week on the day that Billboard announces the chart positions based on the prior week’s sales (I think this is Thursday, but I’m not positive).

Ah, adjusts. Here’s where things get a little tricky, because record sales do not generally follow the same patterns as movie ticket sales. Through analysis of copious historical data, HSX has determined that as an average, a film’s box office totals after 4 weeks of wide release will be approximately 2.9 times it’s opening weekend (I will acknowledge reading a TT post last year where someone posted that in recent years the average multiplier has actually been between 3.0 and 3.1, but that is not the point). Record sales don’t behave in the same way – it is not unusual at all for an album to remain on the charts for months or for an album to start slowly and then move up the charts after weeks of release. Part of this is the result of releasing multiple songs/videos from the same album over a period of time and part is from the fact that most film distribution is done on a schedule that limits certain types of exclusive release windows over time (e.g., full price theatrical for 8 weeks, discount theatrical for 4 weeks, airline/transportation release for 4 weeks, hotel/premium viewing for 4 weeks, home video/cable pay per view for 4 weeks, pay cable for 4 weeks, etc.). No such timing exists with record releases (other than singles) – all formats of an album hit the stores at the same time. At this point I will come clean and admit that I have not even attempted to come up with any type of average multiplier for record sales, and I doubt that anyone else has either (part of the problem is that about 250 films are released theatrically every year, as compared to 25,000 albums).

As such, I believe that the formulas for adjusts would have to be somewhat arbitrary. I would suggest that the way that the adjusts would work would be based on an album’s Billboard chart position in its initial week of release; further, the delist period would also vary by initial chart position to allow slow starters to catch up (these are similar to the different treatment in the movie exchange afforded to wide and limited releases). This system could work as follows:

The numbers above could be (and might need to be) revised based on more data, but they illustrate the concept. In one example I cited above, the Backstreet Boys’ “Millennium” album would have adjusted to 390, and although this is a huge adjust, we should remember that at one point just prior to release, STRWR was trading at around 340, and also that this adjust would likely be one of the biggest for quite some time. The long delist periods mean that a major part of the music game will be watching an album’s progress before delist – watching for arb (or anti-arb a/k/a bra) stocks will be extremely important, since a album may start slowly with a weak first single and then take off on a second song (there are more examples of this than I could possibly remember, but they include Stone Temple Pilots’ debut album and Pearl Jam’s “Ten”). Likewise, many albums may start huge and then drop like a stone in their second or third week of release (e.g., Puffy Daddy’s “Forever” album). I acknowledge that this system isn’t perfect – you could have an album that has stayed in the top 10 for weeks, although it has delisted (e.g., Santana’s “Supernatural”); however, one should note that the same thing has happened on the movie exchange (e.g., Titanic). An alternative idea would be to have the multipliers also change based on initial chart position (i.e., albums debuting between 26-50 would have a 6x multiplier; albums debuting between 51-100 would have an 8x multiplier, etc), although this might lead to many very high adjusts for albums that go nowhere, and could throw off the skill level involved in the game.

Overall, I think that this system would give players more ways to make money, which is always good for small accounts (and considering the fact that most HSX players have barely, if at all, touched their music accounts, this would be a good thing). One can also easily see how options and warrants could be worked into this system as well. Since someone will likely ask, I think that people should be able to keep their present music port value – after all, they did put the time and effort into it. I would appreciate feedback on this proposal, even if critical, because I would really like to see the music exchange develop into something that all HSX players could really enjoy as something other than a punch line.

Respectfully submitted,
Poster Boy