A Big Star May Not a Profitable Movie Make

Movie industry executives may be forgiven for thinking that the Viacom chairman was mad to let Tom Cruise go after a 14-year relationship simply because Mr. Cruise seemed a little off balance. Yet, if you ask economists and other academics that study the movie industry, Mr. Redstone’s decision was, in financial terms, spot on. No one really knows what was going through Mr. Redstone’s head, but one can’t discard that the reason is that it doesn’t make economic sense to pay him all this money. “There is no statistical correlation between stars and success,” said S. Abraham Ravid, a professor of economics and finance at Rutgers University, who, in a 1999 study of almost 200 films released between 1991 and 1993, found that once one considered other factors influencing the success of a film, a star had no impact on its rate of return.

In fact, there is a whole branch of economics that aims to explain how talented people generate so much more money than competitors who are only slightly less good. This idea is know as “superstar economics.” Superstar economics states that improvements in technology would make it easier for top performers in a field to serve a larger market. This would not only increase the revenue generated by stars, but would also reduce the revenue available to everybody else.

On average, movies that have big names starring in them make more money at the box office than movies that do not. Movie industry specialists argue that, in the complicated world of Hollywood economics, stars bring many different kinds of benefits. They are easier to market, they help sell more tickets at home and overseas and they help drive home-video sales, which are a bigger and bigger slice of studio revenue. Moreover, even if a star-studded movie does well, it does not necessarily mean that the stars are causing higher ticket sales. In fact, it seems to move the other way around: stars select what they believe are promising projects. And studios prefer to put stars in movies that they expect to be a success.

What do you think? Are superstars the reason for Hollywood’s success? Maybe the combination of a promising project and a superstar is the reason for fame.