Tuesday, December 23, 2008

Man, That's a Lot of Holes

Lots of interest (okay, nerdly on-line levels of interest) about a recent study in the UK that seems to indicate that our economy 3.0 savior, the Long Tail, may not have nearly as much salvation on board as some have hoped.

Read the London Times article and the thoughtful response from Mike at Idolator. Between bouts of overdosing on rum balls and Kiefer-ing my Christmas tree I decided to add in my on two pence.

My understanding of 'the Long Tail' is that all those sales of obscure items (books for Amazon, music for iTunes) will eventually make money for the retailer. That is what makes it a viable economic theory, it works for the company selling the individual bits of rarely desired stuff – not necessarily for the creator of the things being sold.

If the overhead is low enough – cheap rent to store all of Amazon’s books in warehouses in remote Kentucky or Utah, or even cheaper hard-drives full of audio files in Cupertino for iTunes – then selling one of something per year can theoretically be profitable. As long they are also selling one per year of many, many, many other things.

This is where people seemed to get confused – the Long Tail works for the retailer, not the maker of the music or book. The Long Tail, and this new British study seems to back this up, makes no guarantees that this kind of economy of smallish scale will work out for the actual content creator. In fact, it kind of shows that it doesn’t.

For a long time (pre-digital) the record labels hunted for hits believing that the blockbuster (as in movies and most other entertainments) were the things that propped up the company while they searched for the next hit. A small number of really successful artists/albums would allow labels to sign and promote enough new artists to find the next hit-maker (and also the hundreds of duds and failures that actually soak up the majority of the profits from Michael Jackson or the Crue).

My take on this is that this study does not contradict the Long Tail theory at all. This study shows exactly what the Long Tail theory would predict – amongst the handful of things that do sell, there are many things not selling much if at all.

Look at the famous Long Tail chart with that sliver of yellow extending out to the right. That is the ‘Tail,’ the vein of gold that can be mined for unanticipated (and untold?) profits. This study from the Times does not focus on the narrow sliver of sales – this study is about ALL that white space above the yellow. All the digital songs that don’t get sold, or maybe not even searched for. The study doesn’t say there is no gold in the mine, their numbers just reveal there is lots of worthless dirt piled on and around the nuggets of gold. Lots and lots of dirt.

My two main conclusions:

  1. The Long Tail might work in the real world. Maybe, maybe not – this study doesn’t seem to prove or disprove the relevancy of the theory. I think the main factor in the workability of Long Tail-style sales is how low the seller can get the friction. How little overhead can they have and how much raw earth can they have on hand to allow customers to sift through to find their own personal gold. Maybe it is not possible in the real world for this to truly work (like perpetual motion) – but these new numbers don’t really shine much light on it.
  2. Being the artist creating the records that sell zero copies (or even the ‘winner’ that sells one) in a year must be no fun. But that, too, is not anything new.

Here’s to a fat tail (heh, heh) in 2009. Happy Holidays and a joyful New Year.

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"We're finding out that digital isn't the holy grail that everyone thought," says one channel insider.
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