With a sliding box office and rising film budgets we explore whether or not movie stars deserve such a large pay day

Something extraordinary happened just a few days before this year’s Oscar ceremony. One rumor eclipsed all the talk of gift bags and gossip, of gay cowboys and emperor penguins: A certain young actress, it was whispered, was about to break Julia Roberts’ $25 million record as the highest-paid female star in show business. Word had it that Reese Witherspoon would earn a whopping $29 million for her role in a high-end horror flick at Universal called The Bell Witch.

This news was greeted with relish. At cocktail parties, agents and other industry insiders seemed positively drunk about the development. ”I heard she’s actually getting $39 million,” chirped one dealmaker, who had nothing to gain from Witherspoon’s windfall. In an industry constitutionally predisposed to lament other people’s good fortune as one’s own personal loss, it was an unprecedented kumbaya moment of group celebration over someone else’s success.

Of course, there was one hitch to this collective you-go-girl moment. It wasn’t true. The industry was aflame with the news for more than a week before the studio finally doused the rumor: Witherspoon hadn’t finalized her deal to star in the movie yet. (She still hasn’t.)

Obviously, Hollywood needed a morale boost. After last year’s sagging box office (down 5.2 percent), fueled in part by a convoy of lackluster star vehicles (think Bewitched, Cinderella Man, Elizabethtown), the movie industry has been forced to confront the reality that it is no longer the economic Energizer Bunny it once was. Hollywood has always thrown ungodly sums of cash at top-tier actors, who ostensibly provide a kind of bomb shelter for the studios picking up the tab. It was a strategy that worked well enough until it didn’t. Now that the costs of making movies have ballooned with added expenses for digital enhancement and global marketing, studios are trying to add a new step to their budget calculations: common sense. ”It’s a rationalization of the business,” says former Twentieth Century Fox chair-CEO Bill Mechanic. ”It’s long overdue. You paid someone a lot of money to star in a movie, and then you spent a lot of money to make a movie, and then you lost money.”

Consequently, stars have been hit with dramatic wage cuts. While the megatalent will always take home pay the size of a Powerball jackpot, even they are now being asked to forgo either a portion of their initial salary or a percentage of their ”back-end points,” studio-speak for profit participation in a film’s box office revenues. Until recently, such A-listers customarily got extravagant sums up front in addition to huge percentages of the box office grosses, all before the studio had broken even on its own investment. However, dozens of conversations with industry players reveal that now studios are increasingly reluctant to fork over the kind of deal Universal made with Peter Jackson and his creative team on King Kong, paying them $20 million on top of their 20 percent of the gross. ”The balance is out of whack,” says Universal Pictures chairman Marc Shmuger. ”We’re seeing that finally addressed by the talent community, agencies, and studios.” Even Tom Cruise, who reportedly collects 20-30 percent of his movies’ grosses, agreed to a smaller piece of the pie on M:I-3 when Paramount was faced with a bloated budget.