Star power fades as Hollywood retrenches

John W. Schoen Senior producer • Profile • E-mail

This week’s unceremonious sacking of  Hollywood A-lister Tom Cruise was blamed by Paramount chairman Sumner Redstone on the star’s off-screen behavior. But the breakup was also based on a more fundamental business decision: High-priced stars like Cruise just aren’t producing the box-office payoffs they used to.

Once considered a safe bet for their ability to reliably draw people to theaters, “bankable” stars are becoming a dying breed, no longer able to command fat, upfront paychecks.

“Five years ago there were 10 stars that got into the $20 million (per film) category, and they were all big draws,” said media analyst Dennis McAlpine. “I don’t think you’ll find those any more.”

Analysts cite a number of reasons, among them the rise of powerful new production technologies that offer audiences ever more dazzling new special effects. Only three of the top 10 grossing films last year were star-driven, for example. The rest, including the latest Star Wars and Harry Potter installments, took in hundreds of millions without the benefit of a marquee name among the cast.

“It appears that the movies that are making it big are not necessarily making it because of the star,” said McAlpine. “People are so enamored with the technology and the special effects —that’s the problem.”

Star paychecks also are getting clipped because Hollywood studios have less money to spread around. After decades of solid growth, annual box office receipts recently leveled off at about $9 billion — and then began falling last year.

Other formerly reliable sources of cash are also drying up, including once-lucrative licenses for viewing on television, according to Tuna Amobi, an entertainment analyst for Standard & Poor's.

“Studios have relied on the back end part when the past year’s box office underperformed,” he said. “It’s no longer taken for granted (that) you could take a loss in the theater and expect to pull in solid numbers.”

Studios also are finding they can’t wait as long between a film’s theater run and its release to other forms of distribution.

“The DVD windows and video-on-demand windows are narrowing, so studios now have a shorter window for ticket sales,” said Amobi.

That means less opportunity to collect the premium price fans pay during a film’s initial release: One DVD rental for a family of four brings in only a fraction of the price of a trip to the theater. And sales of DVDs are also leveling off.

“The problem now is that the DVD player market is saturated,” said McAlpine. “You don’t have new (DVD owners) coming in and buying the new DVDs.”

With less money coming in, paychecks for big-name actors aren’t the only place studios are cutting back. Last month, Disney announced that it was cutting 650 jobs and would sharply reduce the number of films in production.

To boost the bottom line, Disney says it will invest more in other related products, like video games, action figures and cable TV shows. One of the studio’s most successful franchises, "Pirates of the Caribbean," will also give a boost to the theme park attraction upon which the movie was based.

Other studios also have begun tightening their belts as the box office power of stars continues to flicker.

“There’s a shift—the younger audiences don’t care as much about big stars. They’re not as impressed,” said Harold Vogel, who follows the movie business at Vogel Capital Management. “Audience are watching YouTube and those guys blowing up a soda bottle.”

Hollywood also is beginning to play more by Wall Street’s rules, in part because more of the financing for films is coming from hedge fund investors, who look closely at the return they get on each dollar of capital invested. With the returns at the box office becoming more unpredictable, those investors are now expecting stars to share in the risk – forgoing big upfront payments, according to Vogel.

“At the end of the day if Paramount makes $20 million and Tom Cruise makes $80 million -- he took a risk on his performance, his credibility with the audience, he spent 6 to 9 months on the picture,” said Vogel. “But he didn’t put up a penny of capital.”

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