Why Paramount dumped Tom Cruise

Mr. De Vany and W. David Walls, an economist at the University of
Calgary, took those factors into account.  Looking across a sample of
more than 2,000 movies exhibited between 1985 and 1996, they found that
only seven actors and actresses – Tom Hanks, Michelle Pfeiffer, Sandra Bullock, Jodie Foster, Jim Carrey, Barbra Streisand and Robin Williams – had a positive impact on the box office, mostly in the first few weeks of a film’s release.

In the same study, two directors, Steven Spielberg and Oliver Stone also pushed up a movie’s revenue.  But Winona Ryder, Sharon Stone and Val Kilmer
were associated with a smaller box-office revenue.  No other star had
any statistically significant impact at all.  So what are stars for?  By
helping a movie open – attracting lots of people in to see a movie in
the first few days before the buzz about whether it’s good or bad is
widely known – stars can set a floor for revenues, said Mr. De Vany.

Here is the full story, on the new economics of cinema. 

I am a bit closer to an efficient markets view on this question.  Stars don’t matter much per se.  But many stars — or their agents — are good at picking the right movies to star in.  Other more critical inputs, including good scripts and marketing expenditures, follow these stars around.  The value of the star drops out of the regression, but the star was still the key certifier to get the quality put into the movie in the first place.

Addendum: Here is Art DeVany’s blog, and here is Art on beer and pizza.

Comments

Here's another reason to dump Tom Cruise.
Top 50 U.S. box office hits starring Tom Cruise: 0.
Top 50 U.S. box office hits starring Jeff Goldblum: 3.

I also lean towards efficient markets, but it's possible the Paramount decrees created holdup problems in the industry, which might be the reason you see so many aberrations like these. De Vany also has an interesting paper showing that Hollywood makes far too many R-rated films. More than half, if I remember correctly, of the films made over a 10 year period he looked at were R-rated, and those R-rated films were packed with stars, even though R-rated films' contribution to overall profits were smaller than G, PG or PG-13. He has a way of trying to test for whether R-rated films are less risky - if so, that might explain the imbalance in the portfolio - but concludes that films cannot be predicted ex ante and so it is not the case that one type is less risky than another.

De Vany's contribution to movie economics is very provocative to say the least. His book, Hollywood Economics, is a great place to start.

P.S. Here's another one for you. The last sentence of the article:

" Mr. Ravid, the Rutgers professor, suggests that stars serve as insurance for executives who fear they could be fired for green-lighting a flop. “If they hire Julia Roberts and the film flops, they can say ‘Well, who knew?’ † said Mr. Ravid. "

That's known as the 'Microsoft insurance' in IT and it goes like this: "Noone
body was ever fired for buying a Microsoft software product." See, you might
be sure that the software from a small, unknown company is better, but you
might be punished and lose your job if it is not. A Microsoft product, on the other
hand, is a safe career choice, which increases MS's superstar value.

Hollywood executive producers (the middle managment) are known to be
notoriously ass-covering and spine-less, which obviously is a result
of the risk in that business.

This leads me to ask a question I've been wondering for a little while now: why does (or should) every movie at a given cineplex cost the same to see? Doesn't it seem a little strange? It obviously costs more to make 'Titanic' than 'Harold and Kumar go to White Castle,' and quite a bit more was spent in promoting the former. And, no doubt, demand for a given movie varies tremendously. So why is every movie the same $9.50 during first run?

I certainly wouldn't pay $11(Manhattan prices) to see Harold and Kumar. I might consider it if I was paying $3. There are plenty of movies that I would like to see but that I don't deem good enough to pay theatre prices for and just wait for them to come out on DVD.

I can't be the only one doing that.

... after writing the last comment I was thinking - geez, didn't I read a good blog discussion of this problem somewhere? And after some googling I did indeed find it:

http://www.marginalrevolution.com/marginalrevolution/2005/03/why_are_all_mov.html

In fact I didn't have to look very far.

Thanks, Commenterlein! I'm surprised I missed this the first time around. I find it amusing that I chose the same price point.

I did consider the Tuesday vs. Saturday effect when I thought about this, as well as whether there ought to be an opening weekend premium (too risky, since opening weekend is such a powerful driving metric for the industry - particularly so for films that are likely to see a large second-week drop).

I also have a deep suspicion that, at some point, a smart theater will start offering "returns" - some sort of pass or discount if you leave a movie in the first 20 minutes.

Did anyone see the episode of South Park about Scientology where Tom Cruise locked himself in a closet? The one that Isaac Hayes quit over? (Yeah, in the next episode they used voice clips from old shows to turn his character into a pedophile). Tom Cruise apparently insisted that Comedy Central (which, like Paramount, is a subsidiary of Viacom) not re-air the episode or he'd...well, do something nasty, I'm not quite sure what. And they didn't. Well guess what: last weekend, right on the coat tails of Cruise getting dumped from Paramount, it's on.

This leads me to believe that Tom Cruise getting dumped from Paramount is actually a blow struck in the covert war over our souls....er, Thetans.

Why not have an eBay or Priceline/Hotwire process for tickets? If opening weekends are a concern, then just run it on Mon-Thu or Mon-Wed. Maybe set a reserve price of $1 or something.

Harold & Kumar was a good movie.

When it all comes down to it, the success of a movie deals primarily with whether or not the actors in a certain movie are popular.

Take The Terminal, for instance.

It grossed $77,032,279 in 2004 in the U.S. Box Office.

The movie was 2 hours and 8 minutes long. It was about a traveler from a foreign country who is stuck in a terminal due to a war breakout in his country.

What is the big deal about this movie? I saw it and was bored senseless.

But-would the movie have been even plausible to sit through had it starred someone who was not an acclaimed actor? The answer is no.

The only reason that anyone even went to see this movie was strictly because Tom Hanks was in it. The whole "I've never seen a movie with Tom Hanks in it that wasn't good" comes in to place now.

Take Cast Away, a movie that also starred Tom Hanks.

It grossed $233,630,478 in 2000.

This movie was 2 hours and 23 minutes long and was about a man who was stranded on an island with no one and nothing. All in all, it is a story about a man surviving the unknown for four years all alone.

Big. Deal. It was a horrible movie and I was bored out of my mind. Aside from Tom Hanks being in it, I only went to see it because I knew someone in it (Nick Searcy).

The only reason that these movies gross so much is because ticket prices at theaters are so high.

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