The sales data and trends from these services and others like them show that the emerging digital entertainment economy is going to be radically different from today’s mass market. If the twentieth-century entertainment industry was about hits, the twenty-first will be equally about niches.
For too long we’ve been suffering the tyranny of lowest-common-denominator fare, subjected to brain-dead summer blockbusters and manufactured pop. Why? Economics. Many of our assumptions about popular taste are actually artifacts of poor supply-and-demand matching—a market response to inefficient distribution.
The main problem, if that’s the word, is that we live in the physical world, and until recently, most of our entertainment media did, too. That world puts dramatic limitations on our entertainment.
THE TYRANNY OF LOCALITY
The curse of traditional retail is 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 four 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, video-game stores, booksellers, and newsstands.
In each case, retailers will carry only content that can generate sufficient demand to earn its keep. However, each can pull from only a limited local population—perhaps a ten-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. It’s not enough for a great documentary to have a potential national audience of half a million; what matters is how much of an audience it has in the northern part of Rockville, Maryland, or among the mall shoppers of Walnut Creek, California.
There is plenty of great entertainment with potentially large, even rapturous, national audiences that cannot clear the local retailer bar. For instance, The Triplets of Belleville, a critically acclaimed film that was nominated for the best animated feature Oscar in 2004, opened on just six screens nationwide. An even more striking example is the plight of Bollywood in America. Each year, India’s film industry produces more than eight hundred feature films. There are an estimated 1.7 million Indians living in the United States. Yet the top-rated Hindi-language film, Lagaan: Once Upon a Time in India, opened on just two screens in the States. Moreover, it was one of only a handful of Indian films that managed to get any U.S. distribution at all that year. In the tyranny of geography, an audience spread too thinly is the same as no audience at all.
Another constraint of the physical world is physics itself. The radio spectrum can carry only so many stations, and a coaxial cable only so many TV channels. And, of course, there are only twenty-four hours of programming a day. The curse of broadcast technologies is that they are profligate users of limited resources. The result is yet another instance of having to aggregate large audiences in one geographic area—another high bar above which only a fraction of potential content rises.
For the past century, entertainment has offered an easy solution to these constraints: a focus on releasing hits. After all, hits fill theaters, fly off shelves, and keep listeners and viewers from touching their dials and remotes. There’s nothing inherently wrong with that. Sociologists will tell you that hits are hardwired into human psychology—that they’re the effect of a combination of conformity and word of mouth. And certainly, a healthy share of hits do earn their place: Catchy songs, inspiring movies, and thought-provoking books can attract big, broad audiences.
However, most of us want more than just the hits. Everyone’s taste departs from the mainstream somewhere. The more we explore alternatives, the more we’re drawn to them. Unfortunately, in recent decades, such alternatives have been relegated to the fringes by pumped-up marketing vehicles built to order by industries that desperately needed them.
Hit-driven economics, which I’ll discuss in more depth in later chapters, is a creation of an age in which there just wasn’t enough room to carry everything for everybody: not enough shelf space for all the CDs, DVDs, and video games produced; not enough screens to show all the available movies; not enough channels to broadcast all the TV programs; not enough radio waves to play all the music created; and nowhere near enough hours in the day to squeeze everything through any of these slots.
This is the world of scarcity. Now, with online distribution and retail, we are entering a world of abundance. The differences are profound.
MARKETS WITHOUT END
For a better look at the world of abundance, let’s return to online music retailer Rhapsody. A subscription-based streaming service owned by RealNetworks, Rhapsody currently offers more than 4 million tracks.
Chart Rhapsody’s monthly statistics and you get a demand curve that looks much like any record store’s: huge appeal for the top tracks, tailing off quickly for less popular ones. Below is a graph representing the top 25,000 tracks downloaded via Rhapsody in December 2005.
The first thing you might notice is that all the action appears to be in a tiny number of tracks on the left-hand side. No surprise there. Those are the hits. If you were running a music store and had a finite amount of space on your shelves, you’d naturally be looking for a cutoff point that’s not too far from that peak.
So although there are millions of tracks in the collective catalogs of all the labels, America’s largest music retailer, Wal-Mart, cuts off its inventory pretty close to the Head. It carries about 4,500 unique CD titles. On Rhapsody, the top 4,500 albums account for the top 25,000 tracks, which is why I cut the chart off right there. What you’re looking at is Wal-Mart’s inventory, in which the top 200 albums account for more than 90 percent of the sales.
Focusing on the hits certainly seems to make sense. That’s the lion’s share of the market, after all. Anything after the top 5,000 or 10,000 tracks appears to rank pretty close to zero. Why bother with those losers at the bottom?
That, in a nutshell, is the way we’ve been looking at markets for the last century. Every retailer has its own economic threshold, but they all cut off what they carry somewhere. Things that are likely to sell in the necessary numbers get carried; things that aren’t, don’t. In our hit-driven culture, people get ahead by focusing obsessively on the left side of the curve and trying to guess what will make it there.
But let’s do something different for a change. After a century of staring at the left of this curve, let’s turn our heads to the right. It’s disorienting, I know. There appears to be nothing there, right? Wrong—look closer. Now closer. You’ll notice two things.
First, that line isn’t quite at zero. It just looks that way because the hits have compressed the vertical scale. To get a better view of the niches, let’s zoom in and look past the top sellers. This next chart continues the curve from the 25,000th track to the 100,000th. I’ve changed the vertical scale so the line isn’t lost in the horizontal axis. As you can see, we’re still talking about significant numbers of downloads. Down here in the weeds, where we’d always assumed there was essentially no meaningful demand, the songs are still being downloaded an average of 250 times a month. And because there are so many of these non-hits, their sales, while individually small, quickly add up. The area under the curve down here where the curve appears from a distance to bump along the bottom actually accounts for some 22 million downloads a month, nearly a quarter of Rhapsody’s total business.
And it doesn’t stop there. Let’s zoom and pan again. This time it’s the far end of the Tail: rank 100,000 to 800,000, the land of songs that can’t be found in any but the most specialized record stores.
As you can see, the demand way out here is still not zero. Indeed, the area under this curve is still another 16 million downloads a month, or more than 15 percent of Rhapsody’s total. Individually, none of those songs is popular, but there are just so many of them that collectively they represent a substantial market. In 2005, Rhapsody ran out of inventory at around 1.5 million tracks. It’s now more than 4 mi
llion. (There are more than 9 million tracks circulating on the informal peer-to-peer networks.)
What’s extraordinary is that virtually every single one of those tracks will sell. From the perspective of a store like Wal-Mart, the music industry stops at less than 60,000 tracks. However, for online retailers like Rhapsody the market is seemingly never-ending. Not only is every one of Rhapsody’s top 60,000 tracks streamed at least once each month, but the same is true for its top 100,000, top 200,000, and top 400,000—even its top 600,000, top 900,000, and beyond. As fast as Rhapsody adds tracks to its library, those songs find an audience, even if it’s just a handful of people every month, somewhere in the world.
This is the Long Tail.
You can find everything out here in the Long Tail. There’s the back catalog, older albums still fondly remembered by longtime fans or rediscovered by new ones. There are live tracks, B-sides, remixes, even (gasp) covers. There are niches by the thousands, genres within genres within genres (imagine an entire Tower Records store devoted to eighties hair bands or ambient dub). There are foreign bands, once priced out of reach on a shelf in the import aisle, and obscure bands on even more obscure labels—many of which don’t have the distribution clout to get into Tower at all.
Oh sure, there’s also a lot of crap here in the Long Tail. But then again, there’s an awful lot of crap hiding between the radio tracks on hit albums, too. People have to skip over it on CDs, but they can more easily avoid it online, where the best individual songs can be cherry-picked (with the help of personalized recommendations) from those whole albums. So, unlike the CD—where each crap track costs perhaps one-twelfth of a $15 album price—all of the crap tracks online just sit harmlessly on some server, ignored by a marketplace that evaluates songs on their own merit.
What’s truly amazing about the Long Tail is the sheer size of it. Again, if you combine enough of the non-hits, you’ve actually established a market that rivals the hits. Take books: The average Barnes & Noble superstore carries around 100,000 titles. Yet more than a quarter of Amazon’s book sales come from outside its top 100,000 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 already a third the size of the existing market—and what’s more, it’s growing quickly. If these growth trends continue, the potential book market may actually be half again 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.”
The same is true for the other Long Tail markets we’ve looked at:
When you think about it, most successful Internet businesses are capitalizing on the Long Tail in one way or another. Google, for instance, makes most of its money not from huge corporate advertisers, but from small ones (the Long Tail of advertising). EBay is mostly Tail as well—niche products from collector cars to tricked-out golf clubs. By overcoming the limitations of geography and scale, companies like these have not only expanded existing markets, but more important, they’ve also discovered entirely new ones. Moreover, in each case those new markets that lie outside the reach of the physical retailer have proven to be far bigger than anyone expected—and they’re only getting bigger.
In fact, as these companies offered more and more (simply because they could), they found that demand actually followed supply. The act of vastly increasing choice seemed to unlock demand for that choice. Whether it was latent demand for niche goods that was already there or the creation of new demand, we don’t yet know. But what we do know is that with the companies for which we have the most complete data—Netflix, Amazon, and Rhapsody—sales of products not offered by their bricks-and-mortar competitors amounted to between a quarter and nearly half of total revenues—and that percentage is rising each year. In other words, the fastest-growing part of their businesses is sales of products that aren’t available in traditional, physical retail stores at all.
These infinite-shelf-space businesses have effectively learned a lesson in new math: A very, very big number (the products in the Tail) multiplied by a relatively small number (the sales of each) is still equal to a very, very big number. And, again, that very, very big number is only getting bigger.
What’s more, these millions of fringe sales are an efficient, cost-effective business. With no shelf space to pay for—and in the case of purely digital services like iTunes, no manufacturing costs and hardly any distribution fees—a niche product sold is just another sale, with the same (or better) margins as a hit. For the first time in history, hits and niches are on equal economic footing, both just entries in a database called up on demand, both equally worthy of being carried. Suddenly, popularity no longer has a monopoly on profitability. The new shape of culture and commerce looks like this:
THE HIDDEN MAJORITY
One way to think of the difference between yesterday’s limited choice and today’s abundance is as if our culture were an ocean and the only features above the surface were islands of hits. There’s a music island composed of hit albums, a movie island of blockbusters, an archipelago of popular TV shows, and so on.
Think of the waterline as being the economic threshold for that category, the amount of sales necessary to satisfy the distribution channels. The islands represent the products that are popular enough to be above that line, and thus profitable enough to be offered through distribution channels with scarce capacity, which is to say the shelf space demands of most major retailers. Scan the cultural horizon and what stands out are these peaks of popularity rising above the waves.
However, islands are, of course, just the tips of vast undersea mountains. When the cost of distribution falls, it’s like the water level falling in the ocean. All of a sudden things are revealed that were previously hidden. And there’s much, much more under the current waterline than above it. What we’re now starting to see, as online retailers begin to capitalize on their extraordinary economic efficiencies, is the shape of a massive mountain of choice emerging where before there was just a peak.
More than 99 percent of music albums on the market today are not available in Wal-Mart. Of the more than 200,000 films, TV shows, documentaries, and other video that have been released commercially, the average Blockbuster carries just 3,000. Same for any other leading retailer and practically any other commodity—from books to kitchen fittings. The vast majority of products are not available at a store near you. By necessity, the economics of traditional, hit-driven retail limit choice.
When you can dramatically lower the costs of connecting supply and demand, it changes not just the numbers, but the entire nature of the market. This is not just a quantitative change, but a qualitative one, too. Bringing niches within reach reveals latent demand for noncommercial content. Then, as demand shifts toward the niches, the economics of providing them improve further, and so on, creating a positive feedback loop that will transform entire industries—and the culture—for decades to come.
2
THE RISE AND FALL OF THE HIT
LOCKSTEP CULTURE IS THE EXCEPTION, NOT THE RULE
Before the Industrial Revolution, most culture was local. The economy was agrarian, which distributed populations as broadly as the land, and distance divided people. Culture was fragmented, creating everything from regional accents to folk music. The lack of rapid transportation and communications limited cultural mixing and the propagation of new ideas and trends. It was an earlier era of niche culture, one determined more by geography than affinity.
Influences varied from town to town because the vehicles for carrying common culture were so limited. Aside from traveling theatrical acts and a small number of books available to the literate, most culture spread no faster than people themselves. There was a reason the Church was the main mass cultural unifier in Western Europe; it had the best distribution infrastructure and, thanks to Gutenberg’s press, the most mass-produced media (the Bible).
But in the early nineteenth century, the era of modern industry and the growth of the railroad system led to massive waves of urbanization and the rise of the great cities of Europe. These new hives of commerce and hubs of transportation mixed people like never before, creating a powerful engine of new culture. All it needed was mass media to give it wing.
In the mid to late nineteenth century, several technologies emerged to do just that. First, commercial printing technology improved and went mainstream, then the new “wet plate” technique made photography popular. Finally, in 1877, Edison invented the phonograph. These technologies led to the first great wave of pop culture, carried on such media as illustrated newspapers and magazines, novels, printed sheet music, political pamphlets, postcards, greeting cards, children’s books, and commercial catalogs.
Along with news, newspapers spread word of the latest fashions from the urban style centers of New York, London, and Paris. Then, in the beginning of the twentieth century, Edison created yet another mass market with the moving picture, which gave the stars of stage a new, recorded medium to reach bigger audiences and “play” many towns simultaneously.
We are a gregarious species, highly influenced by what others do. And now, with film, there was a medium that could not only show us what other people were doing, but could also endow it with such an intoxicating glamour that it was hard to resist. It was the dawn of the celebrity age.
These potent carriers of culture had the effect of linking people across time and space, synchronizing society. For the first time in history, it was a safe bet that not only had your neighbor read the same news you had in the paper this morning, and gleaned knowledge of the same music and movies, but that the same was true for people across the country.
The Long Tail Page 3
