The Myth of the Long Tail

As I'm trying to get ready for weekend festivities, I'm putting a premium on efficiency, so I'm going to point to a BNET post I have on a new study looking at the "long tail" concept, and how it simply doesn't seem to hold water when you start looking at what is happening in businesses.

The real question is when does having access to many products really help a business. I'd argue that for a store, money would go out the window because you couldn't get enough people physically through the doors to make money from their interest in the vast majority of items. In my own business experience, I've found that some amount of "extra" items can help a catalog appear to be the place to go for products, even though the bulk of sales still come from the normally hot items, but even then you have diminishing returns because of the cost of printing a catalog. Even in a web-only environment, there's still a cost of bandwidth, of managing a database, and of communicating with vendors to get products in. So, the long tail - in moderation - can help boost overall sales and even profit (higher margins) of resellers. If you're a vendor, though, putting your faith in what this can do for you is probably foolish ... unless you're the vendor that came out with the book in the first place.

More on the Radiohead "Set Your Own Price" Experiment

There's a bit more information now - of varying quality - on Radiohead's experiment in letting people set their own price for the group's new album. Anyone in the information business - and that's content of any type - has to be keeping a close on on this story. It could offer some insights into how to make the Internet work as a commercial distribution mechanism.

According to a Forbes article, many people are still pirating the new Radiohead album, even though they could go to the site and get a legitimate copy for free if they wanted to:

On the first day that Radiohead's latest became available, around 240,000 users downloaded the album from copyright-infringing peer-to-peer BitTorrent sources, according to Big Champagne, a Los-Angeles-based company that tracks illegal downloading on the Internet. Over the following days, the file was downloaded about 100,000 more times each day—adding up to more than 500,000 total illegal downloads.

That's less than the 1.2 million legitimate online sales of the album reported by the British Web site Gigwise.com. But Eric Garland, Big Champagne's chief executive, says illegal file-sharing is likely to overtake legal downloads in the coming weeks, given that many of those 1.2 million legitimate sales were pre-orders taken during the 10 days between when the band announced the album and its actual release last Thursday.

Garland suggests that the real culprit is habit - they go to their favorite BitTorrent sites and download in the way they're used to doing.

However, even with lots of pirating, consider the economics. According to a London Times article (and we'll get to the main part of the article in a minute), an Internet survey of about 3,000 people who bought the Radiohead album suggested that most paid an average of £4. Although this won't be particularly accurate, it's the best numbers possible: a rough total of £4.8 million on the album, all going to the band. Given the economics of regular record deals and distribution, I think they made a whole lot more this way.

The real test will be whether they do the same on their next album. I also wonder whether a variation on the approach might have worked even better: pay money to get the album, or pay nothing and get some audio ads thrown in, like the free online music streaming sites. That would have increased the perceived value of the paid version and also increased revenue for the group.

For Music Labels, Distribution Is the New Worry

There's an interesting article in the Wall Street Journal of April 27, 2007 about the problems that music labels face from the big box stores. According to the reporting:

big-box chains are now responsible in the U.S. for at least 65% of music sales (including online and physical recordings), according to estimates by distribution executives, up from 20% a decade ago.

Having that much potential distribution and sales tied up with a limited set of customers is a scary concept for any company for a few reasons that I learned in my time in business and in writing about business. One is that with so much ability to exert pressure, you can bet that prices to the retailers will eventually be coming down. Another, you now have narrower demographic segments dictating what will be commercially acceptable music.

Third, big producers need small producers to create new niches and open fresh areas for production, and that gets much tougher when the large stores are going to be less likely to pick up the work of small labels because it becomes too much trouble to maintain a vendor that supplies a small amount of what the retailer sells.

The kiss of death is, as the story mentions, is that the stores will find the category unprofitable compared to other areas:

That's partly because, with CD sales falling steeply, the discs aren't as hot as other products the stores sell. Also in the wake of the Don Imus controversy, the debate over the lyrical content of rap, rock and pop has flared up again. Oprah Winfrey recently has focused on rap lyrics on her talk show.

Best Buy has apparently reduced the space devoted to CDs, and Wal-Mart has given a quiet heads-up to the big music distribution industry that it will cut back space for music by as much as 20%.

What's a record label to do? Learn a lesson about non-traditional distribution. Some book publishers have been smart, putting their books for years into places where their natural customers might appear but that aren't the usual independent and chain stores. Most publishers don't get it, which is why so many are having problems. You have to meet the consumer where the consumer wants to be. So look at what Starbucks has done and start moving in that direction. Popular music labels could experiment with selling CDs through various fashion outlets, specialty interest stores, and other places where they could receive impulse buys - if music isn't a life style purchase, I don't know what would be. Put it in in the Gap, in Williams-Sonoma, at news stands, in gas stations, in craft stores. It doesn't matter where so long as the people who go to those places are the sort who buy the music. When things get tough, it's time to start thinking outside of the big box.