Blockbusters and the long tail (part 6)

In 2000, when we conducted our original research into how consumers gained value from online markets, our focus wasn’t on the shape of the sales distribution, or on the proportion of sales in obscure products per se. Those measurements were means to an end: measuring the amount of value created by the online processes that allowed consumers to discover and purchase titles that weren’t available on the shelves of brick-and-mortar stores.

But now, the discussion has shifted away from processes and toward the products themselves. Anderson’s 2004 Wired article on the Long Tail spends a great deal of time documenting the proportion of products that sell at least one copy in a given month. Anita Elberse’s 2008 Harvard Business Review article counters by showing that a large proportion of entertainment sales are concentrated in the most popular 10 per cent or the most popular 1 per cent of available products. A subsequent Harvard Business Review debate between Anderson and Elberse extends this discussion to whether long-tail products should be defined on the basis of the absolute number of titles stocked in brick-and-mortar stores or relative to the number of titles available online.

But, as we said at the outset of this article series, processes, not products, are what we think the creative industries should focus on when evaluating the effects of long-tail markets. Does it really matter how flat the tail of the distribution is, or what proportion of sales resides in the flat part of the curve? No. Does it matter whether long-tail products are defined according to a relative or absolute measure of the stocking capacity of the market? Not really. What we believe matters is that consumers gain value from these long-tail products, and the processes necessary to capture this value differ from the processes the entertainment industries have relied on to capture value from blockbusters.

As we discussed earlier, the entertainment industries’ existing processes for capturing value from blockbusters start with a set of experts deciding which products are likely to succeed in the market. Once the experts have spoken, companies use their control of scarce promotion and distribution channels to push their products out to the mass market. In short, these processes rely on curation (the ability to select which products are brought to market) and control (over the scarce resources necessary to promote and distribute these products).

Long-tail business models use a very different set of processes to capture value. These processes – on display at Amazon and Netflix – rely on selection (building an integrated platform that allows consumers to access a wide variety of content) and satisfaction (using data, recommendation engines, and peer reviews to help customers sift through the wide selection to discover exactly the sort of products they want to consume when they want to consume them). They replace human curators with a set of technology-enabled processes that let consumers decide which products make it to the front of the line. They can do this because shelf space and promotion capacity are no longer scarce resources. The resources that are scarce in this model, and the resources that companies have to compete for, are fundamentally different resources:  consumers’ attention and knowledge of their preferences.

To be clear, we aren’t arguing that long-tail products will replace blockbuster products. They won’t. But we do believe that long-tail processes can and will be used to produce not only long-tail products but also blockbuster products. Netflix, for example, hasn’t only enabled you to watch obscure movies that most of the world has forgotten; it has also produced House of Cards, Orange Is The New Black, and other hits of its own.

This combination is extremely potent. Netflix – and other companies that effectively deploy similar processes – can capture consumer’s attention by creating integrated digital platforms that offer a wide variety of content, can use proprietary data to predict what content will succeed in the market, and can take advantage of their unprecedentedly direct connections with consumers to promote this content directly to its likely audience.

If you are a leader in the publishing industry, the music industry, or the motion-picture industry, the risk you face from the long-tail isn’t from products that don’t sell well. The risk you face comes from the possibility that companies which specialise in long-tail products can adapt their processes – their platforms, data, and customer connections – to make it harder for you to capture value in the market for blockbuster products.

How might long-tail processes pose a threat to business models for blockbuster products? Consider the combined effect of the following technological shifts, which we will expand on in the following article series:

1. Digital piracy reduces the profitability of business models that use price discrimination to sell individual entertainment products, and also causes consumers to expect (and demand) the convenience of exploring many different products on a single site (for example, Netflix for streaming video, iTunes or Spotify for music, Amazon for books).

2. Technology gives previously disenfranchised artists new ways to reach their audience and new opportunities to create content, causing an explosion in the number of entertainment choices available to consumers.

3. Long-tail platforms develop sophisticated data-driven processes to learn consumers’ preferences and to help them discover just the right content to meet their unique needs, generating significant consumer loyalty and market power for the platforms.

4. These data and processes become important resources in the entertainment business both for deciding which products will succeed in the market and for efficiently promoting this content to its audience, thereby giving the firms who control this data a significant competitive advantage over those that don’t.