Are Oscars a Sure Midas Touch?
Are Oscars a Sure Midas Touch?
S. Abraham Ravid, Professor, Rutgers Business School, Newark and New Brunswick
Should studios view the gold statuettes handed down this season as a signal of a Midas touch for the actors and actresses honored?
Several studies, conducted on samples of many hundreds of films from the 1990’s and early 2000’s, test the proposition that the participation of past academy award winners and nominees leads to higher profits. The statistics are not easy, since one has to take into account many variables which may affect the financial success of films such as release dates, genres, reviews and ratings in addition to star participation. Then one has to tease out the value of decorated actors and actresses. In other words, just looking at the revenues of the latest film by, say, Brad Pitt will not do.
Early work on the value of awards and nominations in the 60’s 70’s and 80’s came up with mixed results. However, the newer work, for example, my studies published in 1999 and 2004 (with S. Basuroy) 2008 (with D. Palia and N. Reisel) as well as more recent working papers (2010), send a fairly clear message. Once one takes into account as many relevant factors as possible, any correlation between star (past winners and nominees) participation and the rate of return on film investment disappears (however, stars do not hurt you either). Other published papers (for example, By Art De Vany and David Walls and by Anita Elberse) using data from the late 20th and early 21st century, seem to confirm this observation and find little if any value in a decorated cast (however defined).
This may seem counter-intuitive. However, it may be just a reflection of markets at work- academy awards and nominations are a signal of value, they increase the salary and profit share an actor receives in future projects, and thus the studios are left with less, on average. This view can be supported by reports of the zig zag trajectory of some star salaries reflecting their changing value in the market.
Why then do so many movie projects revolve around stars? It seems that the answer lies in a very common attribute of executives, in all industries, and in particular in revolving door industries such as the movie industry, namely, excessive risk aversion. Our 2004 study (with Suman Basuroy) shows that executives tend to choose movie projects which provide less risk but not necessarily higher return. Our 2008 study shows that when studios see a risky project, relative to their portfolio, they tend to co-finance the film rather than bear the entire burden of success and failure (sometimes giving up a huge upside in the process - the film Titanic may be the best example).
Risk averse executives, in turn, may view stars as some form of insurance. Work published in 2003 (with S. Bausroy and S. Chatterjee) shows that stars did provide a revenue bump, but only for movies that were panned by critics. In other words, you do not fail as badly as you would otherwise. And then there is the “who knew” approach, should the film flop (I did my part- hired the best stars- who can account for fickle audiences?).
Of course, awards may enrich the actors receiving them at least in the short run, and may send people to theaters to see the specific movie for which they were honored. A study published in 2005 by German researchers, quantifies the value of Oscar nominations and awards on the films for which the Oscars were awarded. Interestingly, however, that 2005 study suggests that nominations are more valuable financially than actually winning awards. This finding is consistent with campaigns focused on achieving nominations, and with the fact that more movies are still in wide release during the nomination process rather than during Oscar night.
However, it seems that once an actor is on the podium this coming Sunday, the time for studios to benefit from their participation in films has already passed.