The Long Tail — The new economics of IP and culture

Wired just published an amazing article by Chris Anderson, Wired's editor and chief about the cultural and economical shift to a more diverse array of books, movies, and music. In short a huge surge in cultural diversity.

"Forget squeezing millions from a few megahits at the top of the charts. The future of entertainment is in the millions of niche markets at the shallow end of the bitstream."

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 (see 'Anatomy of the Long Tail'). 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. Venture capitalist and former music industry consultant Kevin Laws puts it this way: 'The biggest money is in the smallest sales.'
...

When you think about it, most successful businesses on the Internet are about aggregating the Long Tail in one way or another. Google, for instance, makes most of its money off small advertisers (the long tail of advertising), and eBay is mostly tail as well - niche and one-off products. By overcoming the limitations of geography and scale, just as Rhapsody and Amazon have, Google and eBay have discovered new markets and expanded existing ones.

This is the power of the Long Tail. The companies at the vanguard of it are showing the way with three big lessons. Call them the new rules for the new entertainment economy.

Rule 1: Make everything available

If you love documentaries, Blockbuster is not for you. Nor is any other video store - there are too many documentaries, and they sell too poorly to justify stocking more than a few dozen of them on physical shelves. Instead, you'll want to join Netflix, which offers more than a thousand documentaries - because it can. Such profligacy is giving a boost to the documentary business; last year, Netflix accounted for half of all US rental revenue for Capturing the Friedmans, a documentary about a family destroyed by allegations of pedophilia.

I feel I I must pause here to point out the huge increase in DVD sales for TV series, especially those no longer on the air. This is offering a huge boom to shows that once wouldn't make it past the pilot.

Rule 2: Cut the price in half. Now lower it.
...

Rule 3: Help me find it

In 1997, an entrepreneur named Michael Robertson started what looked like a classic Long Tail business. Called MP3.com, it let anyone upload music files that would be available to all. The idea was the service would bypass the record labels, allowing artists to connect directly to listeners. MP3.com would make its money in fees paid by bands to have their music promoted on the site. The tyranny of the labels would be broken, and a thousand flowers would bloom.

Putting aside the fact that many people actually used the service to illegally upload and share commercial tracks, leading the labels to sue MP3.com, the model failed at its intended purpose, too. Struggling bands did not, as a rule, find new audiences, and independent music was not transformed. Indeed, MP3.com got a reputation for being exactly what it was: an undifferentiated mass of mostly bad music that deserved its obscurity.

The problem with MP3.com was that it was only Long Tail. It didn't have license agreements with the labels to offer mainstream fare or much popular commercial music at all. Therefore, there was no familiar point of entry for consumers, no known quantity from which further exploring could begin.

Thoughts: Finally, someone quantifies substantially what broadband media and divergent interests mean to economics. "The long tail" is a theory on the slow shift of economics from mainstream or popularist IP to less mainstream and even obscure materials like older materials that never sold well or items well outside the mainstream that sell only small volumes. I recently blogged about one such example. The band Postal Service has released their latest CD with little to know marketing more than 18 months ago however it has steadily increased in popularity and sales have increase to more than 351,000 copies.

economics of scale vs. micro economics

This is a well documented reversal of at least some of the principals of economics of scale. Not surprisingly, if your read the fine print on the graphics you will find it came from MIT.

breadth adds depth?
Peer based (broadband) culture increases cultural capacity exponentially over broadcast culture. Therefore the "long tail" does not mean the death of hitmaker culture in fact hitmaker culture may even increase. The breadth of culture may increase the overall capacity of of world culture, thus creating a richer and more diverse global society.

If this inversion of marketplaces or leveling of the "hit maker culture" is true, then we should consider the widespread cultural ramifications. That popularist broadcast media is where mass culture has been going to get it's IP has been thoroughly ingrained in our culture for nearly 100 years. It may take decades or centuries before this new cultural order of peers based divergence is fully realized, but there is no debating how profound this crossover will be.

broadband = diversity = health

This may finally start to answer some questions regarding the diversity of world culture. There were fears that the internet would finish what the broadcast media started and wipe out diversity in world culture; that english might become the one world language, that all cultures would be swept up in capitalist notions. In short, a world mono culture. However, trends like this indicate that the inverse could definitely be true.

Instead of US political, cultural, economical ideals dominating the world view perhaps the inverse is happening and the US is getting swept up or reabsorbed into other economic, ideological, and cultural systems. Perhaps the age of cultural imperialism is dead.

Of course, just to be my own devils advocate, this could all be a last gasp or ho-rah for rich cultural interests, a momentary curiosity or a little revolution before we settle back into keeping up with the Jone's. Diversity could still collapse. Who knows what lies in peoples hearts. All I can say is that at-least "the long tail" is evidence that people are finding what's in their hearts. That is to say, finding ways to engage the world to the level of their capabilities and passion, and that can't be all to bad now can it?

Read the full article: Wired 12.10: The Long Tail