Much has been written about the long tail phenomenon in the entertainment industries. Long-tail enthusiasts claim that low-selling books, CDs, and movies, which are not available in brick-and-mortar stores, will collectively take up a majority share of the market over time. A bestseller itself, Chris Anderson’s The Long Tail: Why the Future of Business is Selling Less of More is currently one of the more visible proponents of this perspective.
Could the long tail really provide increased profits for Hollywood? And is it true that it is better to be Netflix with its tens of thousands of titles than a Blockbuster store, stocking a limited number of popular movies?
Intrigued with these questions, HBS assistant professor Anita Elberse and associate professor Felix Oberholzer-Gee analyzed the distribution of revenues in the U.S. home video industry from 2000 to 2005. The results were reported in their recent working paper, "Superstars and Underdogs: An Examination of the Long-Tail Phenomenon in Video Sales," and have significant implications not only for the types of films studios decide to fund in future, but also strategies employed at retail.
In the video industry, the long-tail view suggests that consumers will purchase an increasing number and a wider variety of videos, everything from Hollywood classics to obscure foreign films. Long-tail proponents believe that consumers have very different tastes, and online retailing with its low distribution costs is finally able to deliver just what consumers want. Ten years ago, however, Philip Cook and Robert Frank’s The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us argued exactly the opposite. Why would you watch some average-quality film, these authors asked, if your favorite titles are always available, for instance via video-on-demand? According to this superstar theory, video purchases will become more homogenous when distribution costs fall.
Which view is right? Elberse and Oberholzer-Gee find some support for both ideas.
"In the paper we show that both the long-tail and superstar effects take place—but that each comes with a twist," Elberse says. "Consumers can find videos online that they can't find anywhere else. And yes, there is a shift in sales to the tail—but there is also an increasing number of titles that do not sell at all."
In the 2000-2005 period covered in the paper, the number of titles that sold only a few copies each week increased twofold—yet the number of titles that didn't sell at all was four times as high as in 2000.
The increasing clutter may be a problem, she notes. With the right technology, anyone can offer a video via Amazon—but does that create the best environment for the consumer? Research on "overchoice" by HBS professor John Gourville has shown that people can be so overwhelmed by the variety of products available that they go away without buying anything at all.
"Even if the long tail accounts for a significant share of sales," says Elberse, "it's not clear whether any single producer or distributor can do much to take advantage of that phenomenon."
In addition, consumers of niche products may be less loyal to the category of products they purchase. "There's a common misconception that people who buy niche products will have greater loyalty to them," Elberse says. "But I bet that the average viewer who likes to purchase classic black-and-white movies also tends to watch hits like Wedding Crashers and Pirates of the Caribbean. Yes, these people venture into the tail—but they're also in the head. Of course there are consumers who shy away from popular content altogether, but they're very few and far between."
Place Your Bets
The research also finds some support for the superstar phenomenon. Sales in the superstar category have become more concentrated, with fewer titles responsible for a large fraction of sales. From 2000 to 2005, the number of titles in the top 10 percent of sales dropped by half.
“Even here, the news for the industry is rather mixed,” explains Oberholzer-Gee. “There are fewer titles that are truly important, which is good news for the industry because it helps save on fixed cost. But unfortunately, the level of sales that today’s blockbusters achieve is disappointing when compared with earlier hits.”
Given the trends documented in Elberse and Oberholzer-Gee’s research, what’s a movie producer (or retailer of these products) to do?
It's not clear whether any single producer or distributor can do much to take advantage of the long-tail phenomenon.
"This is obviously the key question, and one that many in the entertainment industry are currently struggling with," Elberse says. "It's not clear how producers should place their bets."
Should a company make ten movies at a cost of $10 million each, hoping that one or more will find a lucrative niche? Or would it be wiser to invest $100 million in one big bet on a potential superstar?
"I don't know," Elberse admits. "It is hard to compete in those niche markets. But it's also not clear that spending $100 million is a safe bet with an assured return. I think if I were a movie producer, I probably wouldn't radically change the way I do things. I would try to be more careful in picking my bets, but I'd still make big bets on projects I believed in."
The implications for video retailers are a bit clearer. "As a retailer, you should expect that many titles will not sell at all, or in very small quantities, and organize accordingly," she says. Amazon's Marketplace is a noteworthy example; it won't incur costs for less popular videos until a customer actually purchases the title. They can produce a copy on demand, doing away with the need to store inventory in the warehouse that may or may not sell.
Life In The Tail
Elberse and Oberholzer-Gee also analyzed sales data for DVDs and VHS tapes according to a film's genre, rating, and distributor in order to understand what characteristics drive sales in the head versus the tail.
Comedies and documentaries, for example, are better at competing in the tail than the head, while sales for R-rated movies are disproportionately higher in the head of the distribution than the tail. Children's titles tend to generate higher returns in the head than dramas, documentaries, and foreign movies.
Using this approach and accounting for a title's age, it's possible to calculate the value of an inventory at various points in time—a useful tool for retailers trying to balance their stock.
Future research should provide an even deeper look into how and why online channels drive a shift in sales toward the tail. Elberse sees great potential in studying these phenomena in other industries, such as music and books. Given the more private nature of music consumption, she expects the shift toward the tail may well be more pronounced in that industry.
"There's a value in my having seen the same movie as you because they are often the topic of conversation," she explains. "It's frustrating if we're trying to have a chat about movies and neither of us has seen the same film. But that may be less of a problem in music."
Despite evidence that the long tail may prove difficult to take advantage of for content producers, Elberse says she's not surprised by the idea's ongoing currency.
"There's obviously merit in the long-tail view," she remarks. "It also promotes a more democratic view of the world. It's comforting to think that everyone has a shot at success by posting a video on a site like YouTube." On the other hand, the superstar, winner-take-all vision is a bit less comforting—unless you're one of the lucky few at the top.