Jim Barksdale once said that you make money two ways: by bundling or unbundling things. I think this is a very helpful idea. It isn’t the only way to make money but it’s a proven method. A successful bundling approach is Netflix. They take all the entertainment you want in put it in one helpful portal that you can access at any time. A successful unbundling approach is the iTunes music store: all the songs you want for $0.99 each; no need to buy the album.
So again, Barksdale points out a fine way to make money.
How else can you make money? There are other methods and one of my favorites is also one of the most lucrative. If you want to make a lot of money, develop a way to sell certainty in areas of uncertainty. Please note, too, that it doesn’t have to be actual, literal certainty. The perceived kind will work just as well. Case in point: movie stars.
Why are movie stars wealthy? What, exactly, do movie stars offer that no one else can match? It’s not their looks. There are plenty of attractive people out there. It’s not their acting skills. Tom Cruise isn’t exactly what we’d consider a master thespian.
So what makes these people worth hundreds of millions of dollars?
The answer can be found in clothing.
The Power Of A Black Robe
The Latin verb investire means “to clothe”.
This is the origin of the word “invest”.
It is also the origin of the word vestment. A vestment is the official garb of a particular office. A clerical vestment is what an ordinary person could wear and assume the consecrated role of a holy figure.
This is a curious idea: an ordinary person, just like you and me, can be transformed into an exalted figure by virtue of the clothes they wear. And it isn’t just clergy, of course. Judy Sheindlin is a witty New York attorney until she dons the black robes. Then, as if by magic, she becomes Judge Judy—a larger than life character that dominates the day-time television market.
The clothing empowers her in a very literal sense. Like some comic book superhero.
But I digress. The term “invest” is first correlated to commerce in the early 1600s when an individual named “T. Aldworth” wrote to his associates at the East India Company to say that certain “goods and monies” would be “invested” in commodities. Here’s the actual line, written in Olde English, compliments of Merriam-Webster:
Havinge left with us in goods and monies to bee invested in commodities fitt for Englande … to the vallew of 4000 li. — T. Aldworth, Letter to E. India Co., 1613
It’s a funny way of describing the business at-hand. The idea here is that Aldworth’s capital would be “dressed” in a new form of commodities. Doing so would transform it. The commodities would be new “vestments” that could elevate the value of the original money.
Back To Movie Stars
Okay, I’ve drifted a bit from movie stars. So why, again, do we have them?
Because they represent a safe investment. Tom Cruise might not be the best actor or even the best-looking man in the world. But he has something that very few people have: bankability.
Last year’s Mission Impossible: Fallout cost $178 million dollars to make. That’s a lot of money. So the folks at Paramount Pictures had to play very carefully with that kind of investment. They decided to go with the safest strategy that will give them a reliable return.
Tom Cruise is a perfect example of that kind of “investment”. When it comes to movie stars, he’s as reliable as a mutual fund. And sure enough, MI:Fallout made money because his name was on the top of the billing.
Would it have made as much without him? Probably not. He is, after all, the face of that franchise. In fact, you could argue that the entire franchise was rebooted all the way back in 1996 for the sole purpose of creating a reliable investment. Summer blockbusters are seldom safe investments if they don’t have both big names and familiar franchises.
Call it formulaic. It is. When you miss one of those two pieces of the puzzle, you increase the chances of failure significantly. For example, consider the summer blockbuster flop from 2017: King Arthur and the Legend of the Sword. The movie involves the classic, evergreen lore of King Arthur. Knights in shining armor! Damsels in distress! Cartoonish villains! So is this a familiar franchise? Absolutely. The movie has that in spades.
But what about the big names? Does it star Tom Cruise? Maybe Hugh Jackman?
No, it stars the good-yet-unknown Charlie Hunnam. Which leaves folks like me wondering if this movie is going to be worth my time. For most people, the answer was clearly “no”. The movie lost Warner Brothers $150 million. Would that have happened if Tom Cruise had taken the lead instead? I’m not sure. I don’t think so. Tom Cruise movies have never lost money.
So he probably would have saved King Arthur, right? Maybe. Here’s the tricky part: we’ll never know.
Mediocristan and Extremistan
In the early pages Nassim Taleb’s The Black Swan, we learn about two kinds of fabled lands: Mediocristan and Extremistan. Here’s how he describes them:
In the utopian province of Mediocristan, particular events don’t contribute much individually—only collectively. I can state the supreme law of Mediocristan as follows: when your sample is large, no single instance will significantly change the aggregate or the total.
In the world of Mediocristan, Tom Cruise and his 30+ movies are irrefutable proof that his next 30+ movies will make money. In this place, we find comfort in all the data we have collected over time. The law of averages rules.
Then there is Extremistan:
In Extremistan, inequalities are such that one single observation can disproportionately impact the aggregate, or the total.
In this land, there is no such thing as a reliable average. Nothing is guaranteed except that nothing is guaranteed. History, precedence, and occurrence count for very little. As Taleb explains:
In this world, you should always be suspicious of the knowledge you derive from data.
The trick thing is that we live in both places. So it’s always important to know which of these lands we’re occupying with any given venture. To go back to movies … imagine yourself as a movie producer. You have a good script, a classic franchise. Can you “clothe” this in the best “vestment” to make a surefire summer blockbuster?
Yes. You can. By hiring Tom Cruise. Tom Cruise is like an official stamp of approval. He gives a movie credibility. He’s a signal that assures us that the movie will be worth our time and money. Tom Cruise is like a “vestment” that transforms and empowers.
This is obviously very valuable. Because, otherwise, movie-making is an extremely risky, costly venture. It lives in Extremistan.
But the occasional superstar, like Tom Cruise, can bend the laws of uncertainty and turn a risky movie into something safe. Tom Cruise can transfer a movie into the safe, certain world of Mediocristan, where there is always a reliable return. For now. That will, of course, change at some point.
How To Make Movie Star Money
So how do you make money? A lot of money? Find a risky venture and become one of the rare people who can turn it into a safe (i.e. certain) venture.
That’s what Tom Cruise does.
Just remember that this is how you lose a lot of money, too. Find something that is very risky, from Extremistan, and treat it as if it were actually something that is very certain from Mediocristan. This happens all the time.
If Taleb’s Black Swan taught me anything, it’s that Mediocristan is a forgiving place that will let you be wrong on many occasions and still survive. But one mistake in Extremistan can cost you everything if you’re not careful.
Extremistan is where all the greatest wealth is gained. You shouldn’t have to avoid that fabled land. But you should know how to navigate it. We’ll try to learn how this week.