Assurance Contracts for Indie Films

Most indie films and documentaries don’t get to most markets. It’s hard for a theatre to know which of the many indie films audiences really want to see and without the scale of a NYC it doesn’t make sense for theatres to gamble on a screening that might not make audience.

R.J. Lehmann writes about Tugg, a new service that allows someone who wants to create an event to pull the movie to a local theatre:

With Tugg, a user chooses a film and the date, time and the theatre where he or she would like it to be shown. If the theatre approves the request, Tugg creates a personalized event page for the user through which tickets can be sold. If sales meet a set threshold goal before the set deadline, then the screening is on; if not, it’s cancelled and those who bought tickets are refunded their money. As a bonus that provides ample incentive to promote screenings, users who organize events get to keep 5 percent of the gate.

…Essentially, what Tugg offers is what is known in game theory circles as an assurance contract. (That’s ASsurance, not INsurance.) As my old colleague Alex Tabarrok, who has done some pioneering work on the subject, explains:

In an assurance contract, people pledge to fund a public good if and only if enough others pledge to fund the public good. Assurance contracts were not well-known when I began to write on this topic but have now become common due to organizations like Groupon and Kickstarter, which work on this principle (indeed, I have been credited with the ideas behind Groupon, although sadly for my bank account, I don’t think that claim would stand in a court of law). Since no money is paid unless the total pledges are high enough to fund the public good, assurance contracts remove the fear that your contribution will be wasted if other people fail to contribute.

In essence, Tugg handles the logistics of creating a movie event and the assurance contract assures that the event will be profitable.