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

Darlene Chisholm

Journal of Cultural Economics, 2004, vol. 28, issue 1, 37-56

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

Keywords: motion pictures; risk-sharing; share contracts; signalling; star power (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1023/B:JCEC.0000009808.60007.ea

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