There’s no doubt that the big stars make a ton, something studied in a field called “superstar economics” (no joke) which was first termed by Sherman Rosen, a UChicago economist who argued that in a world that is incresingly dependent on technology, those who are mediocre workers are seeing their salaries go down while those who are exceptional and superb, in other words, superstars are seeing their salaries skyrocket, with the result being that superstars on a whole reduce the total revenue generated but dramatically make sure that a huge chunk of it goes to superstars. This New York Times article points out that in the music biz:
In a study about ticket prices for concerts, the Princeton economist Alan B. Krueger found that between 1983 and 2003 . . . the share of concert revenue taken by the top 5 percent of artists increased to 84 percent, from 62 percent.
But, if anything, just because superstars make a lot doesn’t mean its worth it to employ them — I mean, come on, is Brad Pitt really worth that asking price? Of course:
On average, movies that have big names starring in them make more money at the box office than movies that do not.
But is it really the stars’ presence that does this? First, there are tons of movies that have done remarkably well despite the lack of star power. Secondly, increasing revenue for films “due to stars” might only be increasing revenues due to increased distribution or the increased selling of merchandising rights (something pioneered by Star Wars — which, by the way, was a movie that did well despite the lack of super-star power).
Could it then be that stars don’t make movies big? But that stars just tend to pick movies that will be big? Well, what do the numbers say? The article cites several studies.
Arthur S. De Vany’s study found that, when controlling for budget size, G vs PG rating, the number of theaters the film opened in, whether it is a sequel, and other factors which may impact box office take-in, that
Looking across a sample of more than 2,000 movies exhibited between 1985 and 1996, they found that only seven actors and actresses — Tom Hanks, Michelle Pfeiffer, Sandra Bullock, Jodie Foster, Jim Carrey, Barbra Streisand and Robin Williams — had a positive impact on the box office, mostly in the first few weeks of a film’s release. In the same study, two directors, Steven Spielberg and Oliver Stone also pushed up a movie’s revenue. But Winona Ryder, Sharon Stone and Val Kilmer were associated with a smaller box-office revenue. No other star had any statistically significant impact at all.
Thus, turning the original causality relationship (that stars make a movie) on its head … or does it?
Anita Elberse, an associate professor at HBS, who used a fairly accurate prediction market for box-office success called Hollywood Exchange, and found that announcing a star’s acceptance of a role increased, on average, a movie’s theatrical revenue by $3 million. So, a small effect (and if you paid the star more than $3 million, then you have an overall loss — at least with regards to theatrical revenue) but ultimately it seems that a star accepting a role is signaling to the public that a given movie is good, thus guaranteeing that people come to the film, at least before news of whether or not it’s good or bad permeates.
So, if the returns to hiring stars are so low, why bother? Why hasn’t the wonder of capitalism and efficient markets figured this out? One suggestion by Jehoshua Eliashberg, a Wharton professor:
“Movie industry executives keep this perception that stardom is a formula for success, but they don’t measure it . . . They resist using analytical methods for all sorts of reasons, from being uncomfortable with numbers to the argument that this is a creative industry and not a business.”
Hmmm.. interesting indeed…