The Power of Stars

Anita Elberse

Conventional wisdom dictates that the involvement of "star" creative talent is critical to the success of entertainment products. That belief is particularly apparent in the motion picture industry, where some actors and actresses command fees of millions of dollars per movie, and their participation alone can trigger commitments from producers, distributors, and exhibitors. However, evidence of the return on this marketing investment is inconclusive.

In this study, I attempt to shed light on the relationship between creative talent and the performance entertainment goods. My empirical analysis, which focuses on the motion picture industry, takes the form of an event study. I assess the impact of over 1,200 casting announcements (covering over 600 stars and nearly 500 movies) on the behavior of participants of a relevant stock market simulation, the Hollywood Stock Exchange (HSX).

The findings provide strong evidence for the hypothesis that the involvement of stars impacts the expected theatrical revenues, and shed light on the determinants of the magnitude of that impact. Furthermore, an extension of the analysis using data on the "real" stock market performance of film studios listed on the NYSE fails to provide evidence for the view that stars increase profitability. I discuss implications for research and practice.

Executive Summary:

The importance of star power is evident in creative industries from music and film to fashion and architecture. Star actors are paid millions of dollars, but is star talent critical to product success? What determines the value of stars? In the context of the movie business, Elberse calculated the returns in a study comparing 1,200 casting announcements on trading behavior in a simulated and real stock market setting. In a separate study, she also looked at the stars' impact on expected revenues. Key concepts include:

• Star participation positively impacts movie revenue.
• Do not just bet on an A-list star: Combine the right star with the right cast. These interdependencies complicate talent recruitment and compensation decisions.
• Star participation may not add to firm studios' valuation. If profitability or shareholder value is a key objective, studio executives could alter their talent compensation schemes.

 

The author is an assistant professor in the Marketing unit at Harvard Business School.