Movies Are Expensive To Make Because They're So Lucrative

A blog about business and economics.
Feb. 15 2012 10:36 AM

Movies Are Expensive To Make Because They're So Lucrative

Gabriel Rossman is right to say that digitial copying will impact different industries in different ways, and especially correct to note that the economics of Hollywood are at risk of being upended in a much more profound way than the economics of the music industry. That said, I think it's easy to misstate exactly how this is going to work.

Consider Tom Cruise. In his heyday he would regularly earn over $20 million per film before considering any back-end issues. By contrast, all of Chronicle cost only $12 million to make. Not because they replaced the actors with robots but because they replaced Tom Cruise with actors who aren't paid $20 million a picture. This of course raises the question of why Cruise ever commanded such a high salary. The answer isn't that his job is so arduous and horrible that nobody would agree to star in feature films for less than tens of millions of dollars. The answer is that successful movies have, historically, generated tons of revenues so that talent associated with cinematic success has been able to earn sky-high wages. But if the revenue structure of the film industry collapses, this will automatically adjust the earnings of the star performers downward to rematch them to the revenue. This presumably will have some kind of negative impact on the average quality of movie stars, screenwriters, and directors but it's somewhat difficult for me to imagine that the impact would be catastrophic. Stardom as such has a lot of intrinsic appeal. And the costs of the other factors of production that go into movie-making are falling rapidly thanks to technological improvements.

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The people who are really primed to lose out here are the long logistical tails associated with major Hollywood earners. A movie star's sky-high wages generally support an array of managers, publicists, agents, and personal assistants some of whom have their own logistical support tails. That whole ecosystem could easily dry up and completely transform the economy of the Los Angeles metropolitan area, but the movies themselves will keep rolling out.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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