In addition to being a social phenomenon, which reflects a particular ideology, the Hollywood star system is a business strategy designed to generate large audiences and differentiate entertainment programs and products, and has been used for over seventy years to provide increasing returns on production investments. As a marketing technique and business strategy, the system was first used in the theater industry. Between 1910 and 1948 Hollywood borrowed and expanded the star system and stock company approaches from the stage; and through the simultaneous exhibition of films throughout the world, the industry eventually established movie studio stables of stars and earned profits well in excess of those of the largest theatrical companies.
Significant historical changes in the status of movie stars have paralleled decisive technological, economic, and social changes that have affected the American film industry as a whole, such as the coming of sound, the Great Depression, and the rise and fall of movie attendance. The contractual terms and salaries for movie stars have also been affected by the same factors. In the highly competitive and expanding market that existed between 1910 and 1920, the most popular silent-movie stars eventually obtained contractual terms that equalled and possibly exceeded their individual contributions to box-office success, and some of them also became involved in film production themselves, although the development of sound and its demand for experienced stage and radio performers ended the careers of many silent film stars. Those working during the early 1930s, when movie attendance declined and industry power was concentrated in the hands of a few studios, were placed in a poor bargaining position, and studios began exercising near autocratic control over the star system.
The Paramount antitrust decrees in the late 1940s resulted in a shift from a mature oligopoly/ monopoly, or semicompulsory cartel, involving the Big Five studios ( Warner Bros, Loew's/ MGM, Paramount, RKO, and Twentieth Century-Fox) and the Little Three ( Universal, Columbia, and United Artists), to a bilateral oligopoly with six major distributor/ producers and a dozen nationwide theater circuits today. This shift created a slightly more competitive market that benefited the most popular movie stars. Unfortunately, the decline in movie attendance and the rise in production costs, which also occurred during this period, left many less popular contract players unemployed, as stock companies disbanded. In the 1950s and 1960s, although many of the more popular stars remained under studio contract, they also obtained more liberal terms than existed during the studio period, sometimes receiving a percentage of the profits or becoming directly involved financially in film production for both tax advantages and artistic control. During the 1960s and 1970s the absence of studio control forced Hollywood increasingly to rely upon other media, such as television and popular music, to cultivate stars who could then be exploited by the film industry. Eventually some scholars and executives began to question the validity of the star system, embracing instead the "auteur" approach, which suggested that the previous success of a director ensured box-office success better than did the supposed popularity of movie stars.