Anita Elberse
Executive Summary
The importance of star actors permeates the motion picture industry. Although there are thousands of aspiring actors and actresses, the small group that has risen to the top of their profession can command fees of millions of dollars per movie in salaries, perks, and profit participation deals. A handful of high-profile stars, including Tom Cruise, Tom Hanks, Julia Roberts, and Reese Witherspoon, have reportedly been paid salaries as high as $25 million per picture. Is the involvement of star actors critical to the success of motion pictures? Thus article sheds light on the returns on film studios' investments in actors using an event study that considers the impact of more than 1200 casting announcements on trading behavior in a fake and real stock market setting—namely, the Hollywood Stock Exchange and the New York Stock Exchange, respectively. The author finds evidence that the involvement of stars affects movies' expected theatrical revenues and provides insight into the magnitude of that effect. Estimates suggest that, on average, stars are worth approximately $3 million in theatrical revenues. The top ten stars in this study each contribute close to $20 million in revenues or more. The determinants of the magnitude of stars' impact on expected revenues are also examined. Among other things, the author shows that the stronger a cast already, the greater is the impact of a newly recruited star with a track record of box office successes or with a strong artistic reputation. An implication for studio executives is that betting solely on one "A-list" star is not necessarily the best strategy; they need to consider each star in light of the other cast members that have signed on to the project. Finally, the authors does not find that the involvement of stars in movies increases the valuation of film companies that release the movies, which implies that stars may not add more value than they capture (in salary and other forms of compensation), making ordinary talent and stars seemingly equally valuable for a studio that aims to maximize shareholder value instead of revenues. If firm valuation is a key objective, studio executives may benefit from altering their talent compensation schemes.
Biography
Anita Elberse is Assistant Professor of Business Administration at the Harvard Business School. In her research, she primarily aims to understand what drives the success of products in "creative industries," such as media and entertainment, advertising, and sports and how firms can develop effective marketing strategies for such products. Her work has been published in several journals, including Harvard Business Review and Marketing Science. She holds a PhD from London Business School.Â
Journal of Marketing, Vol. 71, No. 4, October 2007
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