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Hit Factories’ Waning Value

Financial Times

Back in the days of the dot-com boom, the business media were clamorous with ideologues assuring us that the Internet changed everything.

That was wrong then, and arguably it still is. But it is less wrong than it was.

So the pressing question is: What kinds of things are being changed and what are not? Rupert Murdoch, head of News Corp., for instance, has famously decided that the Internet is transforming media and advertising, and no doubt he is right.

In general, though, the question is fiendishly hard.

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Much of the point of the Internet is its transfer of power from producer to consumer. So its future depends on the evolution of consumers’ behavior -- on their response to things they have not yet been offered. And that is largely unknowable.

In “The Long Tail: Why the Future of Business Is Selling Less of More,” Chris Anderson does not let this bother him.

Like the dot-com ideologues, he has a “theory of everything.” He struggles, he says, to find an area of business it does not apply to.

In fact, on closer inspection it turns out to be a theory of entertainment, books and the media in general. But it is a very good theory, as far as it goes, and there is much to be said for clearing one corner of the jungle.

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Anderson is editor in chief of Wired magazine, and his “long tail” theory was first aired there in October 2004.

In essence, it says the economics of old-style distribution in his chosen industries produced an obsession with hits, chart toppers and bestsellers.

These might be only a small part of the market, but they were the only bit that made sense for the big operators.

Internet economics change that. If you are selling music or film downloads, your inventory and distribution costs are practically zero.

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So you can capture the entire market, including the long tail of non-hits. And that is often where the real value is.

Anderson gives some thought-provoking examples. The effective capacity of U.S. cinema chains, it seems, is about 100 films a year.

Anything further down the tail would not deliver full-enough houses. But about 13,000 films are shown at U.S. film festivals each year.

The biggest music retailer in the U.S. is Wal-Mart. Its average store carries about 4,500 titles, compared with Amazon’s 800,000.

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This is because the average square foot of shelf space in a U.S. mall has to generate $100 to $150 a month just to break even.

So Wal-Mart cannot afford to carry a compact disc that sells only a few copies a year. But Amazon, being what Anderson calls a “long-tail aggregator,” can cover a vastly greater market by bringing the non-hits together.

The non-hits, it turns out, are often a bigger market in dollars than the hits. In the U.S. in 2004, books selling more than 250,000 copies sold 53 million copies in total. Those selling fewer than 1,000 copies sold 84 million.

What about quality? Though the merit of non-hits is immensely variable, the democratic assumption that hits must be better than non-hits is plain wrong, Anderson persuasively argues.

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Hits are simply what appeal to the largest available middle ground of the population, as demanded by old-style distribution economics.

But the middle ground may still be the minority.

As the Internet experience shows, even those in the middle ground are far more eclectic in their tastes than the hit system allows for.

Once television audiences are freed from the tyranny of the old distributors, audiences for hit shows tumble.

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Mass culture is a function of scarcity, and scarcity is abolished by broadband.

The trouble with the long tail is that you still need a filter. This is where the social nature of the Internet comes in.

Old-style filters were applied in advance by editors, store buyers and the like. Now they come after the event, from online reviewers, bloggers and consumers in general. As Anderson puts it, there are two long-tail rules: Make everything available, and help me find it.

Where might the theory not apply? In Britain, for example, take beer. In 1995 the top 10 brands had 42% of the British market, and in 2003 they had 62%.

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So in a static market, the long tail has actually shrunk -- in spite of the fact that the market has shifted from pubs to supermarkets, which are increasingly selling online.

Still, let us not quibble. The main thing is that Anderson explores his chosen field thoroughly and writes easy and approachable prose.

Those with limited interest in American popular music might be advised to skip bits. But you cannot have everything, let alone a theory to cover it.

*

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Small is beautiful

* The Long Tail: Why the Future of Business Is Selling Less of More

* by Chris Anderson

* Hyperion, $24.95; 238 pages

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Source: Publisher

*

Tony Jackson is a columnist for the Financial Times, in which this review first appeared.


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