A Big Star May Not a Profitable Movie Make (Dinosaur Media DeathWatch™)

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.

Yet, if you ask economists and other academics that study the movie industry, Mr. Redstone’s decision was, in financial terms, spot on. The best reason to get rid of Mr. Cruise or, for that matter, Mel Gibson, or Lindsay Lohan, is not their occasional aberrant behavior. They, like most marquee names in Hollywood, are simply not worth the expense.

“Who knows what went through Mr. Redstone’s mind?” said Jehoshua Eliashberg, a professor of marketing, operations and information management at the Wharton School of the University of Pennsylvania. “But one can’t discard that the reason is that it doesn’t make economic sense to pay him all this money.”

Mr. Eliashberg is part of a growing cadre of academics studying how movies are made, financed and distributed. Most are finding that the studio’s assumption that big stars will increase a movie’s bottom line is simply wrong.

“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.

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Sumner Slap Puts Megastars on Notice
Will Media Giants Feel Less Love for Celebs in Fragmented Future?

By Matthew Creamer and Marc Graser

Published: August 28, 2006
NEW YORK (AdAge.com) -- There's a simple way to sum up the situation for Tom Cruise and his compatriots raking in $25 million a film: "Snakes on a Plane."

It's an odd description of the public slapdown from Viacom Chairman Sumner Redstone, who reportedly stunned Mr. Cruise's camp by ending the actor's 14-year deal with Paramount last week. But the title of the first consumer-modified box-office release-which in past months has slithered into the lexicon as a signifier for, among other things, "an increasing amount of danger and tension"-goes far in stating the challenges that could shape up for the Great American Movie Star, an institution built on a mass-media environment that's rapidly splintering.

That doesn't mean it's all over for Mr. Cruise, Will Smith, Jim Carrey and company, since it goes without saying that in the media and marketing world, star power remains incredibly influential. But Mr. Redstone's business-decision-cum-PR-play is a watershed moment for the nature of celebrity.

It comes at a moment when everyone from studio chiefs to actors unions to advertisers is wrangling with what, precisely, talent is worth in a "Snakes on a Plane" environment, where consumers can manufacture engaging content on the cheap and make talent out of nobodies in the time it takes to say "Rocketboom."

Mr. Redstone's move-aside from being a warning shot at actors gone wild with fringe religions, driving while drunk and anti-Semitism-is more interesting for its suggestion that there could be diminishing returns on the Tom Cruises of the world, who have sat in positions of incredible financial power, commanding enormous upfront fees coupled with back-end takes.

"In a cluttered world, you'll still need stars, if only as signposts, and I don't think their stature will change," said Anita Elberse, assistant professor at Harvard Business School. "What is more likely to change is the way they're compensated, with less fixed cost and more variable costs. The studios would be better off letting the artist share up to a certain level."

Studios, looking to bolster margins, have been trying to curb the amount of money they pay talent, especially as the DVD-from which they reap 80% of the revenue-begins to lose its cash-cow status.

"There's an enormous transition going on in the film business right now," said Robert Stein, head of the motion-picture department at Hollywood talent agency Paradigm. "The studios are looking harder at the return on investment-how profitable are their projects? And everybody is trying to mitigate risk."

Mr. Cruise has been an exception, collecting $20 million in salary and often 30% or more on the back end.

Certainly Mr. Cruise's couch-hopping, Brooke Shields-baiting misadventures, magnified and picked over in today's YouTube, star-obsessed-blog environment, did a great deal of hurt to a meticulously crafted image. He is said to be shopping around for a high-concept comedy to show a less vitriolic side.

Regardless, Mr. Redstone is giving the heave-ho to one of the most bankable stars in history based largely on the notion that Scientologist antics alienated his female fan base and were responsible for the lackluster opening of the third installment of the "Mission: Impossible" franchise (though "M:I3" was the fifth-best-grossing film of the year worldwide as of Friday. Mr. Cruise is expected to earn close to $80 million from it.)

There's already plenty of compelling against-the-grain thinking on the value of stars. Ms. Elberse said "There is insufficient reason to support the hypothesis that stars add more value than they capture. ... Stars may fully capture their 'rent,' the excess of expected revenue over what the film would earn with an ordinary talent in the role, making ordinary talent and stars equally valuable for a studio that aims to maximize shareholder value instead of revenues."

Translated, that means big stars who come saddled with whopping compensation deals might yield bigger blockbusters for a Paramount, but those costs will be a drag on the stock price of a Viacom. In that light, it makes perfect sense that Mr. Redstone himself emerged from the boardroom to flay Mr. Cruise in the pages of The Wall Street Journal.

Mr. Redstone's salvo was stunning PR. It set off a frenetic news cycle in which The New York Times published a piece reported by three writers. Major military actions have been reported with fewer bylines.

contributing: t.l. stanley

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