The Long Tail

The next shoe drops

After we bought back our website in July, I promised that more was to come. Today I'm delighted to share another bit of good news: we've just acquired Reddit. Reddit is an evolution of the "voting" system pioneered by Digg: it's fast, clean and very scaleable to niche subject areas (read: Long Tail media).

To give you an example of how voting-based news sites can apply to news verticals, check out Lipstick.com, which applies the wisdom of crowds, if that's the term, to celebrity news. It's an experiment that we at Conde Nast and our online side, CondeNet, have been running on the Reddit platform for most of the year, and it's given us a lot of confidence in the technology.

Reddit's four employees--founders Steve Huffman and Alexis Ohanian, along with Christopher Slowe and Aaron Swartz, who joined later--will move to our offices in San Francisco. Having had the chance to hang out with them in the run-up to this deal--they are every bit as smart and energetic as you'd guess from the site, and geeky enough to fit in perfectly here--I can't wait. Expect both their technology and ideas to show up in our own site relaunch early next year.  

The Economics of Abundance

My speech last weekend at Pop!Tech on the Economics of Abundance is getting some attention, which is really gratifying. It's something I mention in the book, but am now fleshing it out in a series of presentations and, I hope, some forthcoming blog posts. I'd like to link to a video of the speech, but Pop!Tech only streamed it live and it's no longer available. I'd embed a copy of the Powerpoint deck here, but the two services I know of that offer powerpoint sharing and embedding (SlideShare and Zoho) can't handle the graphics and fonts in my presentation and don't support animations. So instead we'll have to do it the old fashioned way: with a download (view in slide show mode for animations).

Venture capitalist David Hornik does a great job in summarizing (read the whole thing for his analysis, too)

The basic idea is that incredible advances in technology have driven the cost of things like transistors, storage, bandwidth, to zero. And when the elements that make up a business are sufficiently abundant as to approach free, companies appropriately should view their businesses differently than when resources were scarce (the Economy of Scarcity). They should use those resources with abandon, without concern for waste. That is the overriding attitude of the Economy of Abundance -- don't do one thing, do it all; don't sell one piece of content, sell it all; don't store one piece of data, store it all. The Economy of Abundance is about doing everything and throwing away the stuff that doesn't work. In the Economy of Abundance you can have it all

Ross Mayfield puts my speech in the long context of others who have preached the perils of scarcity thinking. "Markets are not [just] transactions and scarcity of attention is false. Our leanings compound abundance and there may be no limit to what we can produce," he writes. 

Ethan Zuckerman does a remarkably thorough and accurate report on the speech here.  And the photo above comes from the Core77 cover here, which picks up on my accidental bon mot: "Google is the world's best tail-finder."

But the real surprise was to see my radical attack on scarcity thinking echoed a few days later by none other than IAC's Barry Diller. CinemaTech reports on an onstage conversation between Diller and Michael Eisner at Forbes' MEET conference in Beverly Hills:

Diller says that being a media company, in the old sense of the word, meant being a distributor. And distributors controlled scarce resources, like a national chain of theaters or TV stations. “They were the ones who originally owned the radio licenses, which then begat the television licenses, which then had those groups take over or be taken over by old-line movie companies,” Diller said. “They were all scarcity distribution systems.”

But now, the Internet enables self-publishing, Diller continued, “which means that the distribution leverage – the chokepoints – is going to evaporate.” The result of this, Diller said, is that “it doesn’t matter who buys what – new audience is going to be created somewhere, by somebody, that you can’t buy.”

And consolidation causes problems. As media companies get more diversified, “they get less well-managed,” Diller said. It’s hard for them to even continue doing what they used to do well, “much less master this new form of plenty, rather than scarcity.” Traditional media companies, Diller said, “were based on being dictatorial, and telling people how they’ll do business with them, and exercising every point of leverage at all points in the process.”

“In a world of not only plenty,” he continued, “but the eventual time-shifting – everything will be time-shifted – you’ll be the editor and the master of your own stuff. The single channel, general entertainment approach [isn’t valuable].”

Barry Diller, apostle of abundance? If you need any more proof that YouTube has shaken Hollywood  to its core, that's it.

Universal's Long Tail music experiment

Earlier this week Universal Music released some initial results from its experiment in tapping its deep archives to measure Long Tail demand for older music (European music, in this case). Unlike most traditional backcatalog re-release efforts, which lead with CDs, Universal made these tracks available only as downloads to keep the costs as low as possible. The aim was to go further down the tail than the economics of physical media and traditional retail would allow, which makes a lot of sense.

The Long Tail equation is simple: 1) The lower the cost of distribution, the more you can economically offer without having to predict demand. 2) The more you can offer, the greater the chance that you will be able to tap latent demand for minority tastes that was unreachable through traditional retail. 3) aggregate enough minority taste, and you'll often find get a big new market.

The key here is that the digital download market is now big enough to make digital-only music distribution a viable approach. Clearly that market is only going to get bigger, so I'd expect many other music labels to follow this approach (as they're already doing with their digital-only labels for new releases of smaller bands, an effort that was led by Warner's Cordless "elabel" and Universal's UMe)

The music released in Universal's European backcatalog experiment stretches back three decades, including tracks from the 1960s, such as Brigitte Bardot’s interpretation of the Jane Birkin/Serge Gainsbourg hit, Je T’Aime Moi Non Plus. 

Here's are some excerpts from the company's press release. I've got a call in to the head of the program and will update with more details when I've spoken to him.

"Online music fans have downloaded more than 250,000 tracks of previously out-of-print recordings by European artists since the launch of Universal Music’s pioneering digital catalogue reissue programme earlier this year....

Universal Music Group International launched its download-only reissue programme in February, as the first step in a multi-year drive to reinstate more than 100,000 European deleted recordings.  The initial offering comprised more than 3,000 out-of-print tracks from the company’s vaults in the U.K., France and Germany.  They were made available through online music services in 20 countries, mostly in Europe.

Overall, these results lend weight to author Chris Anderson’s The Long Tail theory.  In his recently published book of that name, Anderson contends that given the growing choice and diversity of music that is legitimately available through the Internet consumers will be increasingly drawn to recordings beyond current hits.  In this scenario, the total sales of this repertoire (the long tail) can match or exceed those of the hits.

The second batch of deep catalogue reissues is due online in late November, and will include music by Maurice Chevalier, the Christians, the Frames, the Max Greger Orchestra, Mory Kante, Peter Kraus, Lulu, Baaba Maal, Robert Miles, The Orb, Henri Salvador, Savoy Brown and Charles Trenet, among many others.  In addition, Decca Records will be reinstating more than 400 out-of-print classical albums.

Olivier Robert-Murphy, Vice President of Strategic Marketing at Universal Music Group International, said, "It’s easy for our consumers online to find and download current artists and current hits, but through this deep catalogue reissue programme, we are now able to respond to and quantify the appetite for more eclectic, diverse recordings from the past.  It’s clear that this is a ‘tail’ worth chasing."

 

MOST POPULAR ARTISTS BY TRACK

1. Noir Desir
2. Chris de Burgh
3. Gun
4.  Eddie & the Hot Rods
5.  Del Amitri

MOST POPULAR TRACKS

1. Gun, Word Up
2. Eddie & the Hot Rods, Do Anything You Wanna Do
3. Brigitte Bardot, Je T’Aime Moi Non Plus
4. Freak Power, Turn On Tune In Cop Out
5. Cast, Guiding Star

MOST POPULAR ALBUMS

1. Big Country, Steeltown
2. Fairport Convention, Meet On The Ledge
3. Jacques Brel, Ballades et Mots D’Amour
4. Freak Power, Drive-Thru Booty
5. Nana Mouskouri, Les Plus Beaux Noels du Monde

Tower Records, RIP

In August, it was bankruptcy; now it's liquidation. Tower Records is no more. Last year, when Michael Markman and Technorati's Peter Hirshberg made the fantastic Day of the Longtail video, from which the screencap at right is taken, the demise of the largest music chain was just a cheeky prophesy. It's stunning how quickly it came true.

Mike at TechDirt describes what led to this end:

While other record stores began to recognize that that they needed to completely revamp their business -- from becoming combination music/dance clubs and stores to starting their own record labels or becoming "destinations" rather than just stores -- Tower Records leadership insisted that the web "is certainly never going to take the place of stores."

Et Tu, Blockbuster?

George Lucas, Longtailer

From the current issue of Variety:

"George Lucas has a message for studios that are cutting their slates and shifting toward big-budget tentpoles and franchises: You've got it all wrong. The creator of "Star Wars," which stamped the template for the franchise-tentpole film, says many small films and Web distribution are the future.

And in case anyone doubts he means it, Lucasfilm is getting out of the [theatrical-release] movie biz."We don't want to make movies. We're about to get into television. As far as Lucasfilm is concerned, we've moved away from the feature film thing because it's too expensive and it's too risky.

Spending $100 million on production costs and another $100 million on P&A makes no sense, he said. "For that same $200 million, I can make 50-60 two-hour movies. That's 120 hours as opposed to two hours. In the future market, that's where it's going to land, because it's going to be all pay-per-view and downloadable."

That's good news for the vast majority of filmmakers, who have little chance of getting box office distribution today. There's abundant supply of filmmaking talent and abundant demand for their work. The only thing standing in the way is the incredibly limited channel of theatrical release. Fewer than 150 films get distribution on 1,000 screens or more (the definition of mainstream release) each year . Meanwhile, more than 13,000 films are now submitted each year to just one independent film fest--the Tribeca Film Festival--alone. Lucas is right that box-office domination of the movie business seems a throwback to an earlier day of scarcity. Today it's getting cheaper and easier to make a movie. Why shouldn't it be cheaper and easier to distribute it, too? 

Movie review: the worst box-office grosser of 2005

I talk a lot in the book about how distribution bottlenecks distort our culture, with one of the best examples being Hollywood box office. Domestic box office gross revenues are heavily influenced by the number of screens any given movie is shown on. Much of what is usually attributed to quality and popularity is actually due to ubiquity--if you can get your movie to open on more than 3,000 screens, it's bound to do big numbers, whether it's any good or not (see Scary Movie 4). And if you can't get your movie into many theaters, it's not going to do much box office business, even if it's terrific.

The example I used in the book was 2005's absolute worst box office performer, The Dark Hours, which grossed $423 in its run (Not $423,000. Four hundred and twenty-three dollars). It's a Canadian horror film made on a small budget with a cast of relative unknowns, but, I wrote, "not bad at all, according to those who've seen it."

After the book came out, the agent of the film's director, Paul Fox, wrote to say that he had been honored to be mentioned. Despite winning several international awards, The Dark Hours (like many Canadian films) never got US distribution. The only reason it shows up on the US charts at all is that it played for one week at the indie-friendly Pioneer cinema in NYC. One theater, one week, and lucky to get even that--that's the reality of independent films. They asked me if I'd like a copy, and kindly sent a DVD along.

I got a chance to watch it last night and I'm pleased to report that it's really quite good. It's a psychological thriller about a prison psychiatrist, Samantha Goodman, with a brain tumor. After a year of stability, the tumor is now growing and she's starting to lose her grip on reality. Distraught, she drives through the snow to spend the weekend with her husband in the cabin where he's finishing a novel (assisted by her young sister) so she can tell him that the end is probably near. But shortly after arriving and giving him the bad news, they're interrupted by a knock on the door. A young man enters, suddenly pulls a gun, and is then joined by Harlan Pyne, a former patient of hers who had been imprisoned for murder and was, last she knew, still in a coma. He forces them to play games at gunpoint, choosing which body parts to lose and confessing to their crimes, from the affair that Sam's husband and her sister are having to the illegal drug experiment Sam performed on Harlan, who has the same tumor she has.

So far, that's the usual hostage horror stuff. But what makes the movie really interesting [spoiler alert] is that it's never clear what's real and what's being hallucinated by Sam. Does Harlan exist or is he simply a fantasy she created to cover her own murderous rampage? Are her husband and sister having an affair, or has she merely turned her suspicions about them into a vivid dream? There are dozens of clues scattered throughout to suggest that all is not what it seems, but the ambiguity about what's really going on will leaving you turning over scenes for hours afterwards as you consider different interpretations.

The acting is very solid, with Aidan Devine, who plays the psychopathically logical Harlan, the clear standout. Kate Greenhouse (Sam) is a bit chilly and unlikable, but I imagine that's meant to convey the emotional cost of living with a brain tumor. Aside from the distribution problem, my only explanation for the film's poor performance is its uninspired name, generic horror-film box art, and otherwise cheesy packaging--this film is a lot smarter than the box it came in. It's by no means the worst film of 2005; indeed, I'd actually put it in my personal top 100 for the year. The fact that House of Wax did $32 million at the box office and The Dark Hours did $0 million seems to be entirely due to differences in marketing and distribution, not quality.

Reassuringly, the financial failure of The Dark Hours hasn't destroyed Paul Fox's career. He's just finished Everything's Gone Green, which is Douglas Coupland's first screenplay and opened to acclaim at the Toronto Film Festival in September. But once again, it appears that he doesn't have any US theatrical distribution. Fox has talent and a track record of original, excellent filmmaking. Unfortunately, he's Canadian, so you probably won't be able to see his films here on anything but DVD. That's how distribution scarcity distorts culture. There are loads of good movies out there. There just aren't enough theater screens to show them on. 

"Highbrow *and* Despicable"

Here's this week's New York Magazine Approval Matrix. My crime against taste is "laying out the argument in the subtitle." I note, however, that I'm considerably less despicable than a recalled Segway, although a bit more despicable than the Lord of the Rings musical.

 

Why better DVD recommendations are worth a million bucks

Today Netflix announced a million-dollar contest for the team who can come up with the best improvement to its DVD recommendations. Aside for the obvious points that better recommendations are, well, better and the best thing of all is to get volunteers to do the work, why is this such a priority for Netflix, which is known for having pretty good recommendations already?

The simple answer is that search, recommendations and other filters tend to drive demand down the tail, from the hits down to the niches where minority tastes are often better satisfied. Aside from happier customers, this also has some clear economics benefits for Netflix. It so happens that older titles, well down the Long Tail of time, are both cheaper to acquire and tend to get higher ratings than new titles (mostly because they've passed the test of time and have moved beyond the fog of hype that accompanies new releases). Not only that, but Netflix can also buy fewer of them, since as you go further down the curve the demand is spread out over more titles and there's less of a need to buy stacks of expensive new blockbusters to satisfy the rush of rentals requests around the release date.  

To explain why this is such a good business move for Netflix, let's start with the economic picture on the DVD acquisition side. The following chart was primarily meant to show how margins can get better in the tail, but the thing to notice in this discussion is that acquisition costs fall dramatically with age.

Furthermore, DVD renters are much happier with the DVDs they get from recommendations (which tend to be to older DVDs) as opposed to new releases, as shown by the following slide from a presentation that Netflix's Jim Bennett gave at the Recommenders06 conference in Bilbao last month. Note that once again, the most expensive DVDs for Netflix are the new releases ("NR"); the least expensive are the ones that were rented as a result of a recommendation (the left two)

(Each bar refers to a way that a customer found the video that they rented. Again, "NR" is New Releases; "Interest" refers to the recommendations you get when you add a DVD to your queue and you get a "Other films you might enjoy..." suggestion. "Recs" are recommendations based on rental history and ratings.)

Evidence of the power of Netflix's recommendations to drive demand down the tail can be seen in the following data comparison, which shows Netflix rentals versus the industry as a whole (mostly bricks-and-mortar rental stores such as Blockbuster, hence the labeling). I've plotted the demand curves on a log-log scale so the powerlaws look like relatively straight lines and I've indexed them to the same scale for comparison purposes. The difference in the slopes of the lines shows that Netflix is considerably more niche-centric than the traditional industry retailers such as Blockbuster.

Recall that there are two factors that create functioning Long Tail markets: 1) massive increase in product variety, and  2) massive improvement in findability.  In the above chart, for the first 20,000 titles or so the inventory is the same between Netflix and the aggregate bricks-and-mortar retailers. But because Netflix has search and recommendations, two things that are hard to do in a traditional store, it wins the findability contest hands down. That's why its stats show that niche titles (rank 400 and below) are rented far more often: people are able to easily find them even after they've left the new release promotion shelves in physical stores.

So let's put this all together and bring it back to Netflix's recommendations contest. As shown above, the more Netflix can get customers to rent DVDs from recommendations, rather than new releases, the more money it makes and the more satisfied the customer. The prize will go to the team that can improve those recommendations by 10% (measured by correspondence to customer ratings). I don't know what the exact effect of a 10% improvement in accuracy would have on the demand curve, but I can illustrate the basic effect with the following conceptual chart.

Is that worth $1 million? Netflix clearly thinks so. If there were any doubt about the importance of filters to a functioning Long Tail, this should put it to rest.