Does Vertical Integration Spur Investment? Casting Actors to Discover Stars during the Hollywood Studio Era
The Hollywood studio era of the 1930s and 1940s was remarkable for its abundance of glamorous stars. In this paper, we investigate whether the vertical structure of the Hollywood studios, by ensuring studios’ claims to “star capital,” spurred higher levels of investment in discovering stars than was (or is) achievable under alternate regimes (such as today’s film-by-film contracting). The vertical structure consisted of backward integration into talent through long-term contracts and forward integration into exhibition through ownership of theater chains. The investment involved the experimental casting of novice actors to gauge audience appeal. Collecting data on thousands of actors whose careers span nearly three-quarters of a century and conducting several sets of tests, we find evidence of higher levels of investment in actors working under the vertical structure of the studio era than in actors working under alternate regimes.
[Those] who were running the studios at that time … gave me a chance—today, you may get one shot, and if you fail, they break your back and forget about you from that time on. Then, you were part of a system that gave you another chance. So, MGM gave me opportunity after opportunity. (Director Richard Brooks [Eyman , p. 419])You realize that the greatest stars in the picture business were made during an era when they didn’t have one single thing to say about what they did. (Director Howard Hawks [Bogdanovich , p. 362])The studios owned you, and they wanted their property in great shape. (MGM contract player Jean Porter [Davis , p. 88])
Hanssen, F. Andrew and Raskovich, Alexander
"Does Vertical Integration Spur Investment? Casting Actors to Discover Stars during the Hollywood Studio Era,"
Journal of Law and Economics: Vol. 63:
4, Article 2.
Available at: https://chicagounbound.uchicago.edu/jle/vol63/iss4/2