This article from Wired Magazine is essential reading. We are watching the creation of an entirely new economic model for the media and entertainment industries, with far-reaching consequences for our world. Amazon, Netflix, and online music services are discovering the long tail – the market for books, movies, music in a world where everything can be made readily available to everyone, regardless of their physical location.

Our entertainment world is shaped by hits – driven by the need to find local audiences.

“An average movie theater will not show a film unless it can attract at least 1,500 people over a two-week run; that’s essentially the rent for a screen. An average record store needs to sell at least two copies of a CD per year to make it worth carrying; that’s the rent for a half inch of shelf space. And so on for DVD rental shops, videogame stores, booksellers, and newsstands.

“In each case, retailers will carry only content that can generate sufficient demand to earn its keep. But each can pull only from a limited local population – perhaps a 10-mile radius for a typical movie theater, less than that for music and bookstores, and even less (just a mile or two) for video rental shops.”

We’ve come to believe that if something isn’t a hit, it won’t make money and so won’t return the cost of its production. We assume, in other words, that only hits deserve to exist.

The world has changed.

Here’s a simple illustration from a CEO of a digital jukebox company. Take a guess: What percentage of the top 10,000 titles in any online media store (Netflix, iTunes, Amazon, or any other) will rent or sell at least once a month?

Most people guess 20 percent, because we’ve been trained to think that way. But the right answer, says the executive, is 99 percent. There is demand for nearly every one of those top 10,000 tracks.

On the Rhapsody online music service, every one of its top 100,000 songs is streamed at least once each month. The same is true for its top 200,000, top 300,000, and top 400,000. Rhapsody streams more songs each month beyond its top 10,000 than it does its top 10,000. This is the Long Tail.

This is already affecting the creation and marketing of media and entertainment products. Entertainment companies are beginning to embrace niches and leave the hit mentality behind. Almost anything is worth offering on the off chance it will find a buyer. The average Blockbuster carries few than 3,000 DVDs; a fifth of Netflix rentals are outside its top 3,000 titles. Studios can dump movies onto DVD without extras or marketing, and be confident they will find a market somewhere. The book industry is seeing a blurring of the difference between in and out of print. Amazon works with networks of used booksellers to make it almost as easy to find and buy a second-hand book as it is a new one. The article’s author predicts that children today will grow up never knowing the meaning of out of print.

“What’s really amazing about the Long Tail is the sheer size of it. Combine enough nonhits on the Long Tail and you’ve got a market bigger than the hits. Take books: The average Barnes & Noble carries 130,000 titles. Yet more than half of Amazon’s book sales come from outside its top 130,000 titles. Consider the implication: If the Amazon statistics are any guide, the market for books that are not even sold in the average bookstore is larger than the market for those that are. In other words, the potential book market may be twice as big as it appears to be, if only we can get over the economics of scarcity.”

The article goes on to examine how the economics of the Long Tail can or should affect the marketing and pricing of digital entertainment. It’s fascinating reading – not to be missed!

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