ECONOMICS OF THE
STAR SYSTEM
In
the era of vertical integration, the star system affected all three branches of
the industry. A star's popularity and drawing power created a ready-made market
for his or her pictures, which reduced the risks of production financing.
Because a star provided an insurance policy of sorts and a production value, as
well as a prestigious trademark for a studio, the star system became the prime
means of stabilizing the motion-picture business. At the production level, the
screenplay, sets, costumes, lighting, and makeup of a picture were designed to
enhance a star's screen persona, which is to say, the image of a star that
found favor with the public. At the distribution level, a star's name and image
dominated advertising and publicity and determined the rental price for the
picture. And at the exhibition level, the costs of a star's salary and
promotions were passed on to moviegoers, who validated the system by plunking
down a few coins at the box office.
In
economic terms, stars created the market value of motion pictures. To understand
how this worked, we must remember three things. First, affiliated theater
chains were located in different regions of the country, so that to reach a national
audience the majors had to exhibit one another's pictures. Second, the majors
rented their pictures to exhibitors a season in advance of production. And third,
the majors used a differential pricing policy: flat fees for B pictures and percentage-of-the-gross
terms for A pictures. No set price could be charged for
the top-grade product because the market for this type of picture was difficult
to ascertain. Charging a percentage was riskier than charging a flat fee, but
in so doing, a distributor could reap the rewards of a box-office surge.
How
did the majors determine the rental price for a picture, which is to say, the
percentage terms for a new picture? They used star power-the ability of screen
personalities to attract large and faithful followings. In practice, a distributor
simply pointed to the past box-office performance of a star to justify the
rental terms for his or her forthcoming pictures. An economist might say the distributor
used star differentiation to stabilize the demand curve for class-A product.
Star
differentiation did more than stabilize rentals; it also permitted the distributor
to raise prices. Demand elasticity explains the phenomenon. "Demand elasticity
measures the sensitivity of demand in relationship to quantity and change in
price. Theoretically, if demand can be fixed by product differentiation, it
then becomes less sensitive to increases in price." Thus, if a new picture
contained a star with a proven box-office record, an exhibitor would likely be willing
to pay a higher rental for it, feeling certain that the risk was worth it.
The majors buttressed this method of
pricing by instituting elaborate and costly publicity campaigns that revolved
almost exclusively around stars. Because these campaigns were designed to peak
simultaneously with the release of a new picture, as will be discussed later,
they funneled audiences into first-run houses. Owned almost exclusively by the
Big Five, these flagship theaters charged the highest ticket prices and
generated 50 percent of the domestic rentals. Elaborate publicity campaigns
served an added function; a successful launching of a new release helped
establish its market value in the subsequent-run playoff.
from Tino Balio, Grand Design: Hollywood as a Modern Business
Enterprise, 1930-1939 (University of California Press, 1993), p. 144-45