Working Titles

Digital distribution changing industries? So very 1999.

Think again.

The world of physical sales is a world of scarcity. Limited shelf space, limited distribution channels, limited display area; limits wherever you look.

Now, with online distribution and retail, we are entering a world of abundance. And the differences are profound.

To see how, meet Robbie Vann-Adib?, the CEO of Ecast, a digital jukebox company whose barroom players offer more than 150,000 tracks – and some surprising usage statistics. He hints at them with a question that visitors invariably get wrong: “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, and for good reason: We’ve been trained to think that way. The 80-20 rule, also known as Pareto’s principle (after Vilfredo Pareto, an Italian economist who devised the concept in 1906), is all around us. Only 20 percent of major studio films will be hits. Same for TV shows, games, and mass-market books – 20 percent all. The odds are even worse for major-label CDs, where fewer than 10 percent are profitable, according to the Recording Industry Association of America.

But the right answer, says Vann-Adib?, is 99 percent. There is demand for nearly every one of those top 10,000 tracks. He sees it in his own jukebox statistics; each month, thousands of people put in their dollars for songs that no traditional jukebox anywhere has ever carried.

It really does take all kinds.

To get a sense of our true taste, unfiltered by the economics of scarcity, look at Rhapsody, a subscription-based streaming music service (owned by RealNetworks) that currently offers more than 735,000 tracks.

Chart Rhapsody’s monthly statistics and you get a “power law” demand curve that looks much like any record store’s, with huge appeal for the top tracks, tailing off quickly for less popular ones. But a really interesting thing happens once you dig below the top 40,000 tracks, which is about the amount of the fluid inventory (the albums carried that will eventually be sold) of the average real-world record store. Here, the Wal-Marts of the world go to zero – either they don’t carry any more CDs, or the few potential local takers for such fringy fare never find it or never even enter the store.

The Rhapsody demand, however, keeps going. Not only is every one of Rhapsody’s top 100,000 tracks streamed at least once each month, the same is true for its top 200,000, top 300,000, and top 400,000.

This is the Long Tail.

Someone somewhere is interested in every one of almost half a million songs every month.

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. …

Rhapsody streams more songs each month beyond its top 10,000 than it does its top 10,000. In each case, the market that lies outside the reach of the physical retailer is big and getting bigger.

That’s worth repeating: The market for books that almost no store carries is as large as the market for all the books that a store has in stock. (To say nothing about the teensy-weensy stock carried by your average German bookstore.)

The whole story is here, while the version with explanatory graphics begins here.

Author Chris Anderson adds three rules for taking advantage of the new possibilities:

1. Carry everything. Everything.
2. Cut prices in half and then drop them some more.
3. Help people find what they want.

This is the world of the Lisbon agenda.

(Shameless plug: Speaking of things that are very 1999, my paper on digitalization written at the end of that year hasn’t held up too badly, despite the bursting of the dotcom bubble and a few other developments in the field. If anything, its focus was too narrow.)

8 thoughts on “Working Titles

  1. That’s so funny. Haven’t read your paper yet. But around that time I submitted my paper about the transaction cost economics perspective on the changes to net based digital distribution of music :). The best was the “business developer” at German EMI that told me “We haven’t really thought about the Internet yet.”

  2. my paper on digitalization written at the end of that year hasn?t held up too badly […] If anything, its focus was too narrow.

    Agreed. (One little niggle: grandchildren are unlikely to ask about computers talking to each other, they are more likely to ask what a computer is. Obvious, even in 1999 🙂

    One of the issues not obvious in 1999 and seriously affecting the trend you talk about is current copyright and other Intellectual Property legislation. There should be a market for the most obscure items, as you point out, however, that market is stalled by misguided legislation. Consider your paper (I assume that the IP is held by your organization.) It does not carry any explicit IP rights waver, so I can read it because you, as an official in the organization gave explicit permission. If your organization is disbanded, I cannot, for example, legally make that paper available for others to download without gaining the authority of whoever takes over IP responsibility (although I can give them my paper copy.) Neither can you, even though you wrote it.

    The same is true for hundreds of thousands, probably millions, of papers, books, films, recordings of speech, music or anything else where the IP owner is unknown. As your article clearly illustrates, the market for these things would be huge, at least as big as the current market for books and recordings, but it cannot legally exist. And, the really sad fact is, if those owners could be found, very few (none?) would ever object to people enjoying their ‘property’.

    Doug, you predicted in 1999 that technology would decrease the power of the political lobbyist. The effect, so far, has been the opposite: to give the Disneys of the world a tool to frighten governments into legislating for large corporations and against the benefits of society as a whole.

  3. Lobbyists: oops. Can anything in this world decrease the power of the political lobbyist?

    I think what I had in mind is more like the “netroots” activism we’re seeing now, possibly combined with more openness in the legislative process. This latter isn’t coming voluntarily.

    Deadweight copyright is a problem, particularly in film. Larry Lessig is a good expert to read on solutions, but you knew that already.

  4. The best was the “business developer” at German EMI that told me “We haven’t really thought about the Internet yet.”

    This reminds me of an encounter I wrote about in January. While they’ve now hired people to think about the Internet, none of the senior management actually listen to them…

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