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Study Shows Stars Boost Revenue

Additional movie revenues brought in by stars shown to balance higher costs

By Alexa D West, Contributing Writer

Would “Spider-Man” have stuck without Tobey Maguire? Would “Fight Club” have been the same box-office knockout missing Brad Pitt?

Seeking to answer the question of whether big stars do bring in the big bucks, one Harvard Business School faculty member turned to prediction markets to investigate the revenue and profitability in Hollywood movies.

In a paper to be published in the Journal of Marketing, Anita Elberse sought to determine the value of movie stars and how much they contribute to their films’ box-office success.

Elberse, an assistant professor of business administration who teaches a class on strategic marketing, found that movies with greater star-power bring in larger revenues. On average, she said, stars bring in $3 million in revenue.

But while hiring a star increases the overall revenues, that increase is offset by the higher salary.

“It’s a zero-sum situation,” Elberse said.

The difficulty in conducting this type of research comes in determining the direction of causality, and past research has not been able to assess one star’s effect in isolation, Elbrese wrote in her paper, titled, “The Power of Stars: Do Star Actors Drive the Success of Movies?”

Elberse used the New York Stock Exchange for media conglomerates, as well as the Hollywood Stock Exchange (HSX), a prediction market in which users buy and trade stock in movies.

Elberse used the index to examine whether a star’s addition to a cast affected the movie’s stock value.

For example, the stock price of “The Da Vinci Code” rose $43.43 over its expected value with the news that Tom Hanks might appear in the film.

Alex Costakis, managing director of the Hollywood Stock Exchange, said that some traders have made near-exact box-office predictions.

“They picked out the exact revenue for the last ‘Star Wars,’” Costakis said. “The Revenge of the Sith” grossed $108 million in its opening weekend, against an HSX prediction of $106 million.

“That’s the power of the Hollywood Stock Exchange and prediction market,” he said.

HSX traders achieved a similar feat when they predicted that “The Blair Witch Project,” a low-budget, under-the-radar flick, would be a commercial success, Costakis said.

Since its founding in 1996, HSX has had 1.7 million registered traders, according to Costakis. Each day, between 15,000 and 20,000 people use the site, racking up some 50,000 trades, he added.

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