Democracy & Technology Blog Chasing the Long Tail’s Virtuous Circle

The Internet has already deeply affected business models across the spectrum, from supply-chain management to consumer level e-commerce. But it will take real broadband to truly disrupt the visually oriented movie, television, and education industries. James Surowiecki of the New Yorker, in “Disk Averse,” adds to the growing literature focusing on the “Long Tail” economy. Last fall Wired editor Chris Anderson wrote a groundbreaking article by that name showing that digitally oriented content sellers, who were not constrained by the physical scarcities of shelf space or spectrum, earned between 25 and 50 percent of their profits from unpopular products. The volume of niche content (books, movies, songs) is so large, Anderson showed, that it matches or excels the sales and profitability of mainstream, popular content. Amazon, Netflix, and Rhapsody all sell surprising amounts of mostly unknown books, movies, and music. Anderson concluded that if the broadcast, mass media era was built on “hits” — bestsellers, chart-toppers, boxoffice smashes — the digital Internet era will be built on “misses.” Anderson’s work was itself an outgrowth of George Gilder’s 1990 book Life After Television, which described a “worldwide web of glass and light” that would empower consumers not just with choice but their first choice.

In his latest column, Surowiecki explains that Hollywood increasingly makes its money from DVD sales and that small and medium sized films, which cannot be safely marketed to mass audiences like the big-budget lowest-common-denominator action flics, are the big winners. Where movies used to earn 95 percent of profits in theatres, now it’s just 20 percent. Young people go to the opening night movie for the social spectacle. Adults buy DVDs, later on and in larger volumes than boxoffice tickets, only if the content is worthy. DVDs are cheap to make and mail. DVD technology is thus catalyzing a virtuous circle in the film industry. Make smaller movies, which are inherently cheaper but which must be better quality in order to sell. Better x Cheaper = More Profitable.

An even cheaper way to get digital content into homes, however, is bit-carrying photons. The DVD may cost 50 cents to make — inexpensive to be sure — but the marginal cost of transmitting massless bits over optical fiber or coaxial cable is essentially zero. Unlike Netflix with a latency of at least 18 hours, moreover, broadband is immediate.

Delivering better quality content at lower prices, real broadband will thus be a huge boon to consumers. And to content producers. But as we’ve often said, and as John Wohlstetter notes below in his post on broadband IPTV, the federal and state regulators and local mayors and city councils who claim to seek consumer protection are in fact the biggest obstacles to this consumer paradise.

-Bret Swanson

Bret Swanson

Bret Swanson is a Senior Fellow at Seattle's Discovery Institute, where he researches technology and economics and contributes to the Disco-Tech blog. He is currently writing a book on the abundance of the world economy, focusing on the Chinese boom and developing a new concept linking economics and information theory. Swanson writes frequently for the editorial page of The Wall Street Journal on topics ranging from broadband communications to monetary policy.