Wednesday, May 03, 2006

Celebrity -- A Way to Examine Social Capital

Yesterday, we discussed how celebrities make their living capitalizing on markets with these “S” shaped demand curves (or more generally markets with strong social elements). Celebrity is essentially a special form of social capital. Celebrities make money because they have a bizarre social tie with large numbers of people. They make money by renting their social capital to others – movie studios, club promoters, advertisers, etc.. These firms are willing to pay large amounts of money for this because celebrities help them coordinate aggregate demand and reach the high demand, high price equilibrium.

As such, celebrities provide an interesting place to examine social capital. The celebrity world is not a perfect match to the real world, but it allows examination of most of the major elements of social capital in a slightly exaggerated setting. One becomes a celebrity by getting a bunch of people interested in you. Just like in the real world, there are a variety of ways to achieve this, but essentially it boils down to getting people to like you. This involves looking pretty, saying the right things, being seen with the right people, providing others with something they value (frequently entertainment), etc.. And just as different people find their place in the metaphorical high school cafeteria, celebrities find their group of fans and thus can engage in a wide variety of choices (including various illegal activities) without jeopardizing their “fan base.”

I cannot believe that I didn’t think harder about examining social capital by examining celebrities earlier. I’ve been struggling to do research on individual social capital for years, but never really started to see the full set of connections until yesterday.

This is odd given that I had one of my students last year write a paper in this vein. This student wanted to look at the effects of media/publicity on movie box office receipts. Since that was not exogenous, I had her shift focus and look that the effect of scandals involving the film’s stars on domestic box office gross. Sort of testing the “there is no such thing as bad publicity” hypothesis. In reality, though, we were, at least partially, testing the effect of well publicized “bad behavior” around the time of a film’s release on celebrities’ ability to draw in their fans. This market gives us the opportunity to get a sense of what kind of a hit one’s social capital takes when one is caught engaging in socially unacceptable behavior.

Now, I am not sure that we got the empirics figured out just right last time, but basically this is the equation we estimated:

ln(box office) = a + b*scandal + x’*d + star fixed effect + e

where x is a vector including – a measure of publicity, year of release, a crude budget metric, number of screens released on, running time, MPAA rating, season, studio, number of stars on poster, genre, and franchise.

Some of these things may be endogenous to the scandal (e.g., number of screens released on) and something probably needs to be done to control for lasting effects of the scandal, but I think that this is a pretty decent first pass.

The sample size was small (81 films from 15 stars) because the student had to put together most of the info by hand, but ultimately, in this sample, a scandal produced a fairly large (15 percent) and significant negative effect on domestic box office. This suggests (and this is not terribly surprising) that movie success is not determined completely by the quality of what is on screen. The social capital of the stars is an important element of the product’s success.

I think that more research could be done looking at celebrity social capital.

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