The Long Tail

Of Fly Eyes And Newspaper Revenues

You know how the compound eyes of a fly are designed to spot motion and not stationary objects? Well, to a lesser degree ours are as well (which is why we don't see our nose). We're evolutionarily trained to focus on change, even at the cost of sometimes missing what's right in front of us.

The chart below (from Gawker) brings this to mind. It shows US newspaper advertising revenue from 1982 to last year, with the dark brown print revenues and the light brown online. It was headlined "Over the precipice", and the same news (of a 9.4% fall in print ad revenue and a 7.9% fall overall, including online) elsewhere got similarly apocalyptic coverage about the largest fall in fifty years.

But when you see this chart, what's the first thing that you notice? Surprisingly, the industry is just ten percent off its historic highs (much like the stock market) and is still twice as big as it was twenty years ago.

[continued below chart]

If you'd ask me to describe the state of the newspaper industry based on the scary coverage about it alone, I would have guessed that it had fallen by half and that we were back to 1970s levels. Instead, it's a $45 billion business, which is twice as big as Google and Yahoo combined.

The reason we get this wrong is that we give too much weight to the first derivative (growth) or even the second derivative (change in rate of growth) and not enough to the absolutes numbers. In the past, I've called that "endism" and its symptoms include equating negative growth (or even, more sinfully, slowing growth) with death.

Here's the example I gave in the earlier post [updated to reflect comments], using the hypothetical example of Consumer Reports:

• "Absolute people" think: "4 million subscribers is a lot. Consumer Reports must be doing something right."
• "First derivative people" think: "It was 4.5 million two years ago. Consumer Reports is dying."
• "Second derivative people" think:  "They lost more readers last year than the year before! Consumer Reports is dead."

The truth is that the newspaper business is still a huge industry and will be around in one form or another for the rest of my life. That is not to dismiss the declines, but only to note that there's still a lot of money there and what is required is strategic change, not giving up the ghost.

Growth industries are different from sunset industries, but in many cases the second category is larger (one example: the Yellow Pages is still a $16 billion business).  Managing companies on the way up takes a different set of skills than milking them for cash on the way down (and often different people, witness the buyout guys), but fortunes are just as often made the second way.

What people forget is that industries peak at the top. Which is to say, at the very time that the first and second derivative people are writing off a business, those who can stand back and see the value still left in it can make a mint. Laugh at newspapers if you will, but I'll bet some private equity firm out there is looking at the chart above and licking their chops.

This is What A Virtual Oil Field Looks Like

From my friend Shai Agassi's blog ("The Long Tailpipe"):

"Electric cars and windmills are the most complementary products in the green world. Windmills generate a lot more energy at night, as wind picks up when the air cools down. Unfortunately, when you get a lot of wind most people are asleep and the electricity needs to be rerouted elsewhere. Cars are parked at night waiting to get electricity into the batteries - which is a perfect match to the electricity profile of wind generation.

Denmark has 20% of its generation capacity coming from wind. I learned that only 13% of the electrons though are wind electrons, the rest are sold to Norway and Germany - practically for free some times. Those 7% can drive every car in Denmark if you converted the fleet to Electric Vehicles. Clean, Cheap and Abundant - Electric Gasoline... "

Shai is starting a hugely ambitious project, called Better Place, to build an entire electric car infrastructure, starting in Israel. Oh, and the cars will be free--you'll pay for the electricity. (Picture taken in Denmark by Quin Garcia of the Better Place team).

The Future of Free: T-SHirts

Proper update coming tomorrow. In the meantime, a comic:

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(Thanks to Peter Kohan for the find)

Follow-Up: A Long Tail Band Finally Decides to Sign With a Label. Why?

In The Long Tail, I told the story of Birdmonster, a San Francisco band that was living the DIY dream and self-releasing their first album, No Midnight. I wrote:

Label were calling with deals, but Birdmonster turned the offers down. As [lead singer Peter] Arcuni put it, “We’re not anti-label in principle, but the numbers (risk vs. reward) didn’t add up.”

A music label exists primarily to fulfill four functions: 1) talent scouting; 2) financing (the advances bands get to pay for their studio time is like seed capital invested by a venture capitalist); 3) distribution; 4) marketing.

From Birdmonster’s perspective, they didn’t need that. A growing local fan base, amplified online, had already spotted their talent. Improving digital recording technology had made studio time cheaper than ever—they could record the tracks in a few days in the studio and then mix and overdub them at home using personal computers. The cost to record the entire album was less than $15,000, which they covered with credit cards and savings. CD Baby and a similar company called Cinderblock provided the distribution, which gave them a reach as broad as iTunes, Rhapsody and the other top services. And MP3 blogs and MySpace were free marketing.

Why sign their life away now to a label, they reasoned, when they can record and distribute their music themselves and keep their creative independence? If the first self-released album does well, they’ll be in a much stronger negotiating position with the label for re-releasing the first album in stores, or for the second album.

Well, now Birdmonster has in fact signed with a label, FADER (an offshoot of the magazine of the same name). My colleague Steven Leckart interviewed Arcuni to understand what changed his mind about labels:

Q: Last time around, you had plenty of interest from indies and majors, but ultimately decided to self-release. Why did a label seem more desirable this time around? 
A: I think what it boiled down to was the question: "Do we want to be musicians or do we want to run a business?"  To do both equally well just seemed unrealistic. The first time around we had written all these songs in a bubble.  By the time people were starting to notice, it just made sense to do it ourselves.  With the state of the music industry at the time, not many labels were willing to give a relatively unknown band a decent deal.  Changes were occurring, but the industry was fighting them and bands were getting the short end of the stick.  Bands I knew were getting gobbled up and then tossed aside just as fast.  We just figured it was too early to sign away the ownership of our music when we still had plenty of room to grow on our own. 

After the release of No Midnight and the year and half of non-stop touring, all we really wanted to do was go home and write another record.  That was all the band wanted to give our energy to, but the business side had become draining(physically, mentally, and financially).  So it became apparent to the four of us that if we wanted to be continue down that artistic road, we'd need help in other areas. Then it became a question of what type of label and deal was right for us. 

Q: What made FADER such a great fit? How did things like tour support, radio, press, marketing, distribution factor into the decision?
A: FADER was actually one of the first labels that approached us when we began looking, and it became pretty clear right off the bat that these were the guys we wanted to do a record with.  They had a similar mindset to us:  First and foremost focus on making the music, and then we'll get creative and use the  tools out there to share it with the world.   Beyond that, it seemed that they had a great grasp of marketing (being owned by Cornerstone Promotions).  I remember going to SxSW a few years ago, and before that no one in the U.S. had heard of the Editors.  I doubt if many people left Austin without at least knowing the name.

That showed us that FADER could at least give us the opportunity to be seen and heard.  Things like radio and press are a crapshoot - you might get radio play, you might get a good review, but you can't be dependent on it.  At this point, we just want our music out there, and the opportunity to continue down this path.

Q: When you say FADER are "forward thinking" is there anything more specific you can point to?
A: They understand the industry, and are willing to change with it.  Labels are becoming just one arm in a larger beast: management firms, promotions companies, etc. now all have labels.  They are the ones that larger labels turn to for help, so why not have a roster of bands that benefit from those resources.  I assume also that as record sales go down, it allows them take more risks with signing new talent because the future of the entire company is not wrapped up in the commercial success of one or two bands.  With our deal, FADER came to us and asked us what we wanted out of it before making an offer.  They were the only label to do that.

Q: How many records have you signed on for?
A: It's a two record deal.

Me on Charlie Rose

This was fun. My interview on FREE was paired with one with TechCrunch's Michael Arrington, who not only has better hair (that would be any hair at all), but also had the good manners to button his suit, wear a less ridiculous shirt than me and otherwise fly the Silicon Valley team flag with aplomb. I, meanwhile, managed to put my foot in it by suggesting that Charlie Rose was of the "wrong generation, er, decade, er.."

TED BlimpBot Report: Foiled by Air Conditioning!

[This is a cross-post from my other blog at DIY Drones, where among other things we've been developing an under-$100 autonomous blimp for aerial robotics contests]  

Yesterday my UAV partner Jordi (a 21-year-old embedded programming whiz who just emigrated from Mexico) drove up with the BlimpBot to Monterey, where I was attending the TED conference.  I had a three-minute slot to show how the prototype works. This was a pretty high-stake demo, since not only would there be 2,000 of the most influential people in the technology, entertainment and design (TED) worlds watching, but they included Al Gore in the FRONT ROW, Google's Sergey Brin and Larry Page and movie stars such as John Cusack and Goldie Hawn.

The bot worked great in the hotel room, and then we took it the the auditorium during a break to test it on the main stage. Yikes. We were getting IR interference from everything, from LCD screens to the bright stage lights, and our reception range dropped to something around three feet. Even worse, the air currents were overcoming the blimp's ability to fight them. So we gave up on the idea of a fixed IR beacon on the ground, and I decided to hold it in my hand to keep it near the blimp. Even then, the motors couldn't fight the currents well enough.
So we rushed back to our staging area (my hotel room) and Jordi updated the firmware to give more power to the motors even at the cost of battery life (this demo only had to run three minutes) . We tested it again in the hotel room, it worked fine, and then it was time to go.

When we got to auditorium and waited in the wings to go on, it was clear that something bad had happened in the firmware update. The vertical motor wasn't coming on at all sometimes and it wasn't clear why. Then Jordi realized that in changing the power settings,he'd also changed the timing of the loops, and we weren't resetting the motor controllers at the right time, which meant that the chance of them being working when needed was random (and low). We'd just been lucky in the hotel room, but clearly weren't now. Still, I crossed my fingers and went on, carrying the blimp.

Disaster! It turns out that one big thing had changed since our test run in the auditorium: 600 people had arrived. All that body heat had raised the temperature of the room, kicking in the air conditioning, which came out of huge ducts right over the stage. Basically I was under a raging waterfall of cold air, and the poor blimp sank right to the floor, its little vertical thruster completely overcome.

• Lesson 1: Little blimps need still air
• Lesson 2: If you can't find still air, you need WAY more powerful thrusters (which means more battery power, which means more weight, which probably means a bigger blimp)
• Lesson 3: Don't update your firmware five minutes before you're going to fly an autonomous robot ten feet away from a former Vice President of the United States.
• Lesson 4: Hey, it's a tech demo on stage, and they *always* go wrong--don't let it throw you. So I didn't. I just stood there holding the blimp, as you can see in the picture above, and went on with my talk and slides as planned. Points made, time limit met, applause gained. I looked a bit awkward, I'm sure (although hopefully not always as unhappy as I look above), but at least I got the sympathy vote! Now on to San Diego for Etech on Tuesday, where we get to do it again for an hour in front of the smartest geeks in the world. So much for the sympathy vote ;-) Jordi's hard at work fixing the firmware problems, so fingers crossed...

[Photo credit: Red Maxwell]