When it comes to chronicling the fragmentation of media, there has
been no shortage of ink spilled.
But one recent article on this subject, entitled The
Long Tail by Chris Anderson, editor in chief of Wired, has stood
out in capturing the imagination of the digital media world.
(if you already know about The Long Tail, feel free to skip to the next section)
The main idea of The Long Tail is that the constraints of traditional
distribution systems (e.g. geographic proximity, radio spectrum, retail
overheads, etc.) all have conspired to drive media marketers to concentrate
their promotional efforts on a limited number of large-scale, big-name
projects. As a result of this hits-driven mindset, the vast majority
of creative projects are grossly under-promoted, generating small revenues.
The article asserts that the power of digital distribution is that
it mitigates or even erases many of the physical world's limitations.
Inventory costs are negligible, geographic boundaries are broken, manufacturing
costs are gone. A world of abundant product selection is created. With
marketing tools such as sophisticated segmentation, accurate recommendations
and cost-based pricing, consumers are guided to products heretofore
unseen and unknown, generating newfound revenues for them.
When this concept is plotted on an XY chart, the revenues from these
smaller products extend out along the X axis, forming a line which
looks approximately like a "long tail" on the head of the cluster of
sales driven from the big-name, heavily-promoted products. Hence the
name "Long Tail".
Anderson goes on to explain the power of Long Tail economics by citing
sales and trend data in three media: books (Amazon), music (Rhapsody)
and movies (NetFlix). It is no surprise that there is a lot more stuff
out there than can possibly be fit on store shelves. What is surprising
is that these three companies are finding that their aggregate sales
activity for products they carry, but which are typically NOT available
in traditional retail channels, is actually greater than their sales
for those products that typically ARE found in those retail channels.
In other words, the combined revenues of all the niche products are
larger than the corresponding sum for the hit products. Small-time
products equal big- time profits. That, in a nutshell is the power
of Long Tail economics.
Cable Programming is all about Long Tail Economics
While the name is new, I believe the concept of Long Tail economics is familiar
to anyone who knows the cable TV industry.
There are dozens of "cable" (i.e. non-broadcast) channels. In the
aggregate, they form the Long Tail of television programming, as compared
with the small cluster of seven broadcasters. Cable programming started
modestly as a tactic to elevate cable TV's value proposition from a
simple "antenna" service and was long derided as a motley stew of has-beens
and never-should-have-beens. Bruce Springsteen was even moved to write
a song about it.
But as the quality of their programs has steadily improved, cable
programmers (and operators) have begun realizing Long Tail economics.
On the viewership side, for the last year the aggregate audience for
the dozens of ad- supported cable networks during the crucial "sweeps" periods
has been larger than the combined audience for the group of seven broadcast
networks. In last
month's sweeps, cable again nudged past broadcast by about 202K
And on the ad sales side, cable now gets approximately 41% of the
dollars in the upfront ad market, compared to just under 20% ten years
ago. Cable ad sales have just about tripled during this period to a
projected $6B+ in 2005, driven by deploying increasingly powerful tracking
and market segmentation tools that allow both national advertisers
and small local advertisers to tap cable's potential. (data from Kagan
Research LLC) The holy grail of cable ad sales is to obtain the same
ratio of ad dollars to eyeballs, as compared with the broadcasters.
That objective seems to be within reach.
In short, while it's taken approximately twenty years, Long Tail economics
in cable programming are now being realized.
Why the Long Tail of Video Content is About to get Longer
Even as cable programmers are ascendant, I believe new forces are at work which
hold the potential to flood the market with a torrent of new video content.
This would dramatically lengthen the long tail of video programming, as it
would be defined today. In addition, consumers will also have new ways to
find, share and consume this video.
While these disruptive influences are well-known, their effects are
not yet fully understood. Broadband and IP have opened up a new path
to deliver quality video directly to the end-consumer; wireless connectivity
and new devices are redefining how and where video is consumed; production
costs to create high-quality digital programming are low and getting
lower; video search engines from Google, Yahoo and Blinkx,
which extend existing internet usage behaviors, are becoming more sophisticated
and widely adopted; and most importantly, traditional television advertisers
are increasingly shifting their mindsets (and their bucks) from big
brand-building campaigns to surgical, ROI-based online tactics prompted
by consumers' heightened disdain for commercial interruptions.
Examples of non-traditional publishers who are enticed by the potential
of direct-to-consumer video opportunities abound. Recently I've seen
video product demos on CNET and
print reporters doing video news and features on USAToday.com and NYTimes.com. TheKnot.com is
planning bridal related programming on its site. Last holiday season,
I watched Amazon's short
films. Meanwhile, a resurgent AOL.com is
preparing a fall relaunch of its site with a video-centric strategy.
Plenty of more announcements are on the way.
Will Cable Operators and Programmers Participate in these New Opportunities?
Given their longstanding experience with long tail economics, cable would seem
to be in a prime position to benefit from the upcoming explosion of video content.
Operators have millions of broadband subscribers, and programmers have lots
of video expertise and well-known brands.
On the surface, operators should love the idea of new content that
adds more value to their high speed internet value proposition. But,
operators want to maintain their traditional role as the packager/retailer
of video programming using their proprietary set top boxes. Maintaining
a climate of shelf space scarcity increases their leverage over programmers
in fee negotiations.
A longer tail of video available through other distribution channels
(i.e. the internet) undermines this scarcity. In addition, to date,
most operators have thought of their high speed internet services as
primarily access businesses, not programming platforms. As one smart
operator once told me "Do we really want to be in the role of driving
our customers AWAY from their TV sets?"
Meanwhile programmers should love the idea of having direct access
to their viewers after years of dependency on operators. In fact, recently
everyone from Showtime to SciFi seems
to be experimenting with streaming a show on the net. But
part of these channels' value rests on the same scarcity principle. As an example,
today there is only one "Travel Channel" on the dial. If they moved
a big chunk of their video to the internet, does this hurt them by
shifting eyeballs away from their TV-based programming (thereby hurting
their ad revenues) or help them by opening up a new online revenue
stream and further enhancing interaction with their brand? Are they
even able to do this given current distribution contracts and rights
Finally, programmers already feel the pinch of operators trying to
reel in the fees they pay programmers. If cable's retail video model
was harmed in any way due to programmers going direct, that could only
further strain existing economic relationships. So while a direct-to-consumer
model is enticing on its face, complexities lie just below the surface.
Inaction is not a Recommended Option
These are but a handful of the issues that operators and programmers must think
through to ensure they are on the profitable side of the upcoming internet-
based video proliferation. It's rarely too early to be worried about technological
change and potential competitors. Even more so in the brave new world of
Long Tail economics.