• Abstract and Figures
• Public Full-text

VISIONARY LEADERSHIP BRIEFINGS Superstar Economics Keywords: Superstar blockbuster> star driven economics> superstar revenue> project choice> branding> star power> project budget> studios> success of a film> box superstar executives> office> Tom Cruise> David superstar footballers Beckham> LA Galaxy> corporatevision.io 2 CORPORATE VISION® Visionary Leadership Briefings. Superstar Economics “A big star may not a profitable movie make” The economics of superstars by Nicolas De Santis Using as a “hook” the dismissal of Tom Cruise from Paramount Pictures by Sumner Redstone, and David Beckham’s sensational career move to the Los Angeles Galaxy team, we review the power of superstar branding and the study of income distributions to the stars in sport, business and entertainment often referred to as “Superstar Economics.” The script was so finely tuned, they must have asked the writing department to polish it a bit. Wacky movie star. Losing what few marbles he had in the first place. Lousy movies. Flagging box-office appeal. What else could the suits do but fire the loser? Sumner Redstone, chairman of Viacom Inc., the parent company of Paramount Pictures, has expertly spun the studio’s decision to end its 14-year relationship with actor Tom Cruise. 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. After all, the movies made by Viacom’s Paramount Pictures studio and the actor’s production company earned more than $2.5 billion at the box office. Viacom — that he had secured $100 million of hedge fund Tom Cruise’s production company, has now signed backing for his new production company. The fact that Tom a two-year financing deal with an investment partnership Cruise is talking about hedge funds is an indication of how headed by Washington Redskins owner Daniel Snyder. much business they are doing in Hollywood. The deal between Cruise/Wagner Productions and First There are plenty of smaller hedge fund investors & Goal LLC covers overhead and development, which will nosing around the big studios for a one-off deal, but there allow Cruise and producing partner Paula Wagner to run are a few players who have gone to Tinseltown with big their company and make deals to produce films, some pools of capital. Relativity Media has raised $1.3 billion in conceivably starring Cruise. Tom Cruise also sparked intrigue film finance this year through its two Gun Hill hedge funds, among New York financiers when he announced — after his which are underwritten by Deutsche Bank. So why was unceremonious dismissal by Sumner Redstone, the head of Tom fired? 3 CORPORATE VISION® Visionary Leadership Briefings. Superstar Economics But one can’t discard that the reason is that it David Beckham and doesn’t make economic sense to pay Cruise all this money. There is a growing group of academics and companies LA Galaxy studying how movies are made, financed and distributed. Most are finding that the studios’ assumption that big Only very recently the truth of this statement was played stars will increase a movie’s bottom line is simply wrong. out across the world’s newspapers with the revelation “There is no statistical correlation between stars and that David Beckham, the most famous footballer on success”, S. Abraham Ravid, a professor of economics the planet, had signed with Major League Soccer side and finance at Rutgers University, who, in a 1999 study the LA Galaxy in a five-year deal potentially worth the of almost 200 films released between 1991 and 1993, extraordinary sum of $250 million dollars. During the press found that once one considered other factors influencing conference at which the deal was announced, Beckham the success of a film, a star had no impact on its rate of told reporters, “I’m going there not to be a superstar. I’m return. Employing a star had virtually no discernible impact going there to be part of the team, to work hard and to on the box office itself. Mr. Cruise would no doubt object hopefully win things.” to that assertion. And to be fair, there is some theoretical pedigree to the idea that he may be worth every penny. “Now the fun really begins. Now we’ll find out if In fact, there is a whole branch of economics that aims to explain how talented people generate so much more all the effort and all the money are worth it.” money than competitors who are only slightly less good. Tim Leiweke, the president and CEO of the Anschutz It’s called superstar economics, which has been used Entertainment Group, which owns the Galaxy. to explain the astonishing fees of top lawyers and the skyrocketing pay of star chief executives, dates back to And yet a superstar is assuredly what the team owners will the insight in the late 19th century of the British economist expect for their money: as talented a player as Beckham Alfred Marshall, who observed that “the relative fall in is, few would assert that his on-field skills alone could the incomes to be earned by moderate ability (....) is command a quarter of a billion dollars. Real Madrid paid accentuated by the rise in those that are obtained by a fraction of that amount for the midfielder in mid-2003, many men of extraordinary ability.” and since that time the club has failed to win a single major trophy. Beckham, indeed, is now not considered worthy enough to play for his national side. The obvious truth is that American soccer, and the LA Galaxy in particular, have purchased a branding and marketing tool of enormous potency. Modern media technologies have placed individuals who possess “extraordinary ability” in a position of enormous privilege and power – at the top of the tree, the superstar who can prove himself superior by even the tiniest fraction will see that fraction translated into exponentially enormous rewards. 4 CORPORATE VISION® Visionary Leadership Briefings. Superstar Economics 5 CORPORATE VISION® Visionary Leadership Briefings. Superstar Economics Superstar economics The dynamic was explained by a University of Chicago economist, Sherwin Rosen, in a 1981 paper entitled “Superstar Economics”. Mr. Rose posited that improvements in technology that would make it easier for top performers in a field to serve a larger market would not only increase the revenue generated by stars, but would also reduce the revenue available to everybody else. Michael Jordan pulled in millions of dollars in the 1980’s and 1990’s because basketball fans from San Francisco to Milwaukee would tune in to Chicago Bulls games on TV to watch him play. Take the National Basketball Association. Michael Jordan pulled in millions of dollars in the 1980’s and 1990’s because basketball fans from San Francisco to Milwaukee would tune in to Chicago Bulls games on TV to watch him play. In the absence of Mr. Jordan, those fans would probably have been watching the game of the Milwaukee Bucks or the Golden State Warriors instead. Star Wars and ET were not star driven blockbusters and a big star does not guarantee a success In a study about ticket prices for concerts, the Princeton economist Alan B. Krueger found that between 1983 and 2003, a period in which MTV, Napster, the iPod and other technologies extended the reach of top acts, the share of concert revenue taken by the top 5 percent of artists increased to 84 percent, from 62 percent. Hollywood, where the star system was invented, is not wholly dependent on celebrities: the list of biggest-grossing movies in history is dominated by movies like “Shrek 2,” “ET: The Extra-Terrestrial” and the “Star Wars” series, which were not star-driven. 6 CORPORATE VISION® Visionary Leadership Briefings. Superstar Economics But the industry still places an enormous importance Star success on superstar power based on a straightforward fact: on average, movies that have big names starring in them vs. quality and 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 popularity of project many different kinds of benefits. They are easier to market, they help sell more tickets at home and overseas choice and budget and they help drive home-video sales, which are a bigger and bigger slice of studio revenue. “If the stars’ job is to Even studio chiefs will acknowledge that a star does not increase output, by drawing crowds into the theaters or guarantee success. “Bewitched,”starring Nicole Kidman, selling DVDs, it is not working as well as it had worked cost an estimated $85 million and had taken in only about in the past”. Harold L. Vogel, author of a book called $62 million at the American box office by late 2005. Yet Entertainment Industry Economics: A Guide for Financial there is a bedrock belief that the winning formula consists Analysis states that: “This is a hiatus. We have gone of the right star in the right movie. through 25 years where new distribution for films — “If you pay a star a great deal of money for a film videocassettes, cable and DVDs — added new revenue that people don’t want to see, then it won’t work,” says potential. That meant less resistance to stars’ salary Sidney Sheinberg, the former president of MCA Universal. demands”. “It is always a question of whether you are dealing with a project that is enhanced by a star or are you dealing with a project where you are looking for the star to make While a person will go to a Bruce Springsteen it happen, and sometimes it works and sometimes it concert because the artist is, indeed, Bruce doesn’t.” Springsteen, the success of “The Matrix” had to Anita Elberse, an associate professor at the Harvard do with many other than its star, Keanu Reeves.

Load more

  14

Copy Link