The Econophysics Blog

This blog is dedicated to exploring the application of quantiative tools from mathematics, physics, and other natural sciences to issues in finance, economics, and the social sciences. The focus of this blog will be on tools, methodology, and logic. This blog will also occasionally delve into philosophical issues surrounding quantitative finance and quantitative social science.

Friday, September 01, 2006

Revenge of the Long Tail

There is a new Hollywood drama that is gaining a lot of attention lately starring Tom Cruise, but it's not a movie ... but if it was a movie, it might be called the 'Revenge of the Long Tail.' Sumner Redstone, the chairman of Viacom, all but ran Tom Cruise -- one of the biggest stars in Hollywood -- out of Paramount Studio's lot. A recent New York Times article, A Big Star May Not a Profitable Movie Make (Aug. 28, 2006), argues that -- from both an economics and statistical perspective -- Sumner might have been, in the article's words, "crazy like a fox."

According to the research cited in the article, there seems to be little or no significant correlation between Hollywood stars and the success of the films they star in. For example, Art Devany -- an economist who has specialized in analyzing Hollywood -- conducted research (with W. David Walls) that showed "only seven actors and actresses — Tom Hanks, Michelle Pfeiffer, Sandra Bullock, Jodie Foster, Jim Carrey, Barbra Streisand and Robin Williams — had a positive impact on the box office, mostly in the first few weeks of a film’s release. ... No other star had any statistically significant impact at all." (One could argue that ascribing success to those seven actors may be confusing correlation with causation.)

What this incident between Mr. Cruise and Mr. Redstone may represent is the realization by the business side of the entertainment industry that the huge salaries and perks demanded by the stars aren't quantitatively justified. This possible reversal of fortunes for Hollywood's star system may represent what I would have called (in a previous blog) overcoming the Tyranny of the Power Law -- where a based strategy is embraced over a more elitist strategy.

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