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Two-Part Share Contracts, Risk, and the Life Cycle of Stars: Some Empirical Results from Motion Picture Contracts

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  • Darlene Chisholm

Abstract

What determines the market value of a star? This paper examines the size of fixed payments to leading actors in the U.S. motion picture industry from a sample of contracts between 1959 and 1989. Competing explanations for the size of compensation, including rent capture, risk sharing, signalling, and portfolio optimization by studio executives are explored. The size of fixed payment across all contract types moves with an actor's history of participating in top-20 grossing films over the past five, ten, fifteen, and twenty films. Further, the impact of past top-20 successes is enhanced by the length of the actor's career. When contracts are divided into those with both fixed payments and share payments and those with only fixed payments, the fixed payment in two-part share contracts is influenced to some extent by risk concerns, in addition to the actor's star power. Fixed-payment-only contracts are most strongly influenced by measures of signalling and star power. Data on both types of contract provide strong support for the rent-capture theory: actors are paid rents upfront for the star value they add to the production. Copyright Kluwer Academic Publishers 2004

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  • Darlene Chisholm, 2004. "Two-Part Share Contracts, Risk, and the Life Cycle of Stars: Some Empirical Results from Motion Picture Contracts," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 28(1), pages 37-56, February.
    • Handle: RePEc:kap:jculte:v:28:y:2004:i:1:p:37-56
    DOI: 10.1023/B:JCEC.0000009808.60007.ea
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    Cited by:

    1. Jordi McKenzie, 2012. "The Economics Of Movies: A Literature Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 26(1), pages 42-70, February.
    2. Francisco Alcalá & Miguel González‐Maestre, 2012. "Artistic Creation and Intellectual Property: A Professional Career Approach," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(3), pages 633-672, September.
    3. Morris Holbrook & Michela Addis, 2008. "Art versus commerce in the movie industry: a Two-Path Model of Motion-Picture Success," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 32(2), pages 87-107, June.
    4. Alcala, Francisco & Gonzalez-Maestre, Miguel, 2005. "Artistic creation and intellectual property," MPRA Paper 1287, University Library of Munich, Germany, revised 17 Dec 2006.
    5. Darlene Chisholm & Víctor Fernández-Blanco & S. Abraham Ravid & W. David Walls, 2015. "Economics of motion pictures: the state of the art," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 39(1), pages 1-13, February.
    6. Liyuan Wei, 2006. "—Making Sense of These Million-Dollar Babies—Rationale Behind Superstar Profit Participation Contracts," Marketing Science, INFORMS, vol. 25(6), pages 678-680, 11-12.
    7. Juan Prieto-Rodriguez & Fernanda Gutierrez-Navratil & Victoria Ateca-Amestoy, 2015. "Theatre allocation as a distributor’s strategic variable over movie runs," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 39(1), pages 65-83, February.
    8. Liana Bomm & Daniel Kaimann, 2022. "Base pay and bonus pay for high‐wage employees: A multi‐study approach to organizational performance," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 4139-4152, December.
    9. Alcalá, Francisco & González-Maestre, Miguel, 2010. "Copying, superstars, and artistic creation," Information Economics and Policy, Elsevier, vol. 22(4), pages 365-378, December.
    10. Skilton, Paul F., 2009. "Knowledge based resources, property based resources and supplier bargaining power in Hollywood motion picture projects," Journal of Business Research, Elsevier, vol. 62(8), pages 834-840, August.

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