Why Your DIY Content is Hardly Making It Online
The illusion of the digitized world
Changes in digital technology have had dramatic effects on the content industries because they have opened up possibilities to a new range of actors, allowing them to enter the market and unsettle the rules of the game. Current levels of digitization have impacted on both annual revenues and growth rates, questioning the current business models in many industries and especially the ones that deal with content production and distribution.
As new markets emerge, these industries have to face the challenge of reinventing themselves to secure profits and sustainability. In a more and more crowded market, few players manage to become successful and even fewer to remain in the market.
On one side, digitization has opened up possibilities to smaller actors, but on the other side incumbents can rely on know-how, important networks and resources and established reputation.
The Long Tail Theory
The Long Tail theory was first conceptualized in 2004 by Chris Anderson and refers to the major importance that niche products can attain thanks to digitization. Mainstream products and markets, in fact, have to face the growing number of niche products that are equally available to consumers and therefore, act as direct competitors especially in the distribution phase. While the majority of profits were previously made by selling huge hits or blockbusters, now it is easier for niche products to find their market and expand their audience-base.
The Long Tail is possible because costs of production and distribution have shrunk, especially online: in certain industries the supply is no longer limited by the physical space that is available (for example, in the case of books) or by the costs of reproduction, transport, storing and delivery. On the other hand, the demand has become more complex, as information are openly available, translating in an increasing need for differentiation of creative products, as well as an increasing expectation from customers of high quality products.
Digitization has made it possible for products that were once unprofitable to make margins.
In addition, the Internet has favored the emergence and diffusion of User Generated Content (UGC), allowing people to share their contents without the support of a company or institution, that functions as legitimacy agent and intermediator between the content producer and the public.
The Long Tail theory was born in opposition to the Pareto principle, also called 80/20 rule which states that 80% of an organization’s outcomes come from the 20% of the inputs. In fact, the tail of the curve, treated by Pareto as the 80% that are not substantial, suddenly — thanks to online access — result in a relevant part of the business.
Some primary examples that testify the effectiveness of the Long Tail theory are given by companies and retailers such as Amazon, Spotify and Netflix. For these companies, in fact, the costs of supplying and storing goods can decrease to the point that they can make profits in the long tail markets. This is true for the movie and the music industries, where distribution costs are lower allowing retailers to make their products available to the public. In the audiovisual industry, a very recent and concrete example of this phenomenon is given by the 89th Academy Awards. Apart from the fact that Moonlight, an independent film, produced with only $1.5 million won the Best Picture prize, there is an increasing number of films, documentaries and TV series that progressively gain the attention from the most celebrated event of the year in cinema. Is the success of these new players related to the long tail effect theorized by Anderson, or is it the outcome of major investments in marketing aimed at grabbing the attention of the Academy?
Indeed, the Long Tail provided hope for non-blockbusters to find their way in the market and get a higher share of revenues. It opened the doors to the democratization of access of content in digital contexts.
Is the Long Tail Dead?
The concept of the Long Tail soon unveiled its weaknesses, not in the concept itself but in the hope for more democratically distributed contents. In fact, data analysis has shown that consumers behave online as they do offline. A major critic of the long tail theory is Anita Elberse who, in 2008, published an article in The Harvard Business Review under the title Should you invest in the long tail?.
In discussing the potential death of the long tail, the winner-take-all theory stresses the fact that replication at lower costs made possible by digitization had enhanced the popularity and profitability of blockbusters, generating more convergence of tastes and buying habits.
First, even though the assessment of quality is not easy for what concerns content products, it takes less efforts for majors to invest financial resources to access greater talents and therefore ensure better quality products than what independent producers can afford.
Furthermore, there is a social aspect that cannot be left aside: people like to listen, watch and read the same things as content acts as a social binding agent. The social influence strengthens the concentration of content products, reinforcing their power in the charts.
Consequently, mainstream contents are the ones that most benefit from the cost advantage generated by the digital revolution, because they can always rely on very large audiences.
Following these arguments, Elberse is a supporter of the idea that investments should be made on few, big hits, and that the best business approach must rely on blockbusters. After conducting a research in the music industry, focusing on the music service provided by Rhapsody (now Napster), she discovered that still 78% of plays belonged to the top 10% of the titles, and 32% of all plays were concentrated in the 1% of music titles. This translated in a failure of the revolution expected by Anderson and pushed producers to continue shooting for blockbusters aiming at attracting massive audience, facing this way lower financial risks. Instead of investing more in niche artists and independent content, producers and distributors rely on blockbusters that can grant economic returns and subsequently sustainability of their business.
The reasons underlying these conclusions might be related to the rigid cost structure inherent in content industries production that results in a shallower and fatter long tail than the one predicted by Anderson.
The fragmentation that has derived from technological innovations has divided products on the curve in two main clusters: on one side the blockbusters that are made to make profit and can still rely on mass audience markets; while on the other side niche products can leverage on exclusivity of contents and can enjoy lower levels of costs thanks to consumer participation. Consequently, the central part of the curve is most economically affected by technological innovations and digital consumption, resulting in the least profitable segment of the market.
In those industries where entry barriers have been lowered due to digitization (e.g. book publishing), surprisingly, we have witnessed a failure of the long tail because top selling products remain populated with blockbusters. This does not mean, though, that a long tail does not exist: as a matter of fact, data released by Amazon indicated that 25% of the top e-books sold came from independent publishers, which is something that would have been much rarer with physical books.
It is important to bear in mind that heavy consumers are those that will venture into the tail and will be attracted by niche products that otherwise would not be accessible offline; light consumers will instead drive their choices towards blockbuster products without changing very much their consumption patterns.
As a matter of fact, blockbusters can profit from mass audience reach and long life-cycles thanks to multiple-window distribution; while niche products need to carry out a very accurate profiling scheme of their customers in order to implement a more effective marketing strategy and reach their target audience. Products in the middle of the tail can only leverage on risk-sharing strategies with other actors in the industry or inside the same content production company. Given the unpredictability of performance and appreciation of the content, production companies believe it is best to invest in more projects in order to spread financial risk and to be able to cover the costs of the least profitable contents.
As customers get lost in innumerable options, content producers and distributors have to ask themselves an existential question on how to keep their business sustainable.Today contents are virtually abundant, but this does not mean that consumption has increased. Instead, producers must leverage on quality and distribution networks in order for their contents to be chosen among a growing list of options and grab customer’s attention.
In face of the emergence of new disruptive technologies, producers must rethink about their business structure in order to be sustainable in the long term.
