How a failed economic theory still rules the digital music marketplace
Unless you spent a lot of time listening to early ’00s techno-utopian babble, the Theory of the Long Tail probably means nothing to you. Yet if you live in the US or Europe and you run a digital music label, you’re living it – or the fallout from it – almost every day.
In 2004, Wired magazine editor Chris Anderson proposed The Long Tail, an economic theory blown up by futurist steroids. It theorized that with the introduction of the internet, blockbusters would matter less and everyone would sell “less of more.” The Long Tail prophesied “How Endless Choice Is Creating Unlimited Demand,” according to the subtitle of Anderson’s later book, which if true would turn the field of economics on its head.
For a practical example of what this all means, compare a brick-and-mortar record store like the old Tower Records vs. an online retailer like Traxsource. Your local Tower Records had to limit its inventory to take into account a finite shelf space. Their stock might have consisted of a couple hundred records. And each record didn’t get equal shelf space: your hippie boomer parents were going to buy more copies of Beatles records than all your Belgian techno records, so the store would stock and give more attention to the former. This “artificial” scarcity of physical products taking up physical space and depriving it from other products had bent consumer behavior out of shape for basically all of history.
With the internet and the creation of intangible digital products, this was supposed to change. Traxsource and other digital retailers are limited not by shelf space but by the size of their server hard drive array. And buying more server space is cheaper than building a new store.
According to Anderson, sales would in the future would represent a classic “Pareto” or “power law” demand curve: 20% of sales would be by “star” artists selling millions of copies each in our record store analogy, while 80% would consist of many thousands, tens of thousands or even millions of artists selling relatively few copies of each of their albums as the store’s near-infinite inventory meant people could metaphorically “wander about” and choose from millions of options.
This was the “Long Tail” in a nutshell, represented on a chart stretching to the right into infinity: in the future, music retailers would sell “less” copies from “more” artists. Many more.
And then this elegant economic theory ran headlong into the tsunami of shitmusic.
The Marvel-ization of the Music Industry
Nothing turned out the way Anderson predicted.
As early as 2008 – five years after iTunes was founded and we began to get actual data of how this whole thing was working – keen observers began chopping the Long Tail down to size. Economist Will Page working with Andrew Bud and Gary Eggleton was able to obtain somewhat anonymized transactions from a “large digital music provider” rumored to be either Rhapsody or iTunes itself. They had so much data, in fact, that an ordinary Excel spreadsheet choked on it.
It was a gigantic sample of… nothing.
80% of the songs had no transaction data: they had sold no copies at all.
There wasn’t any volume in the “Long Tail” and nothing had really changed – except for the worst. The actual sales data showed an even greater concentration of sales in the “Fat Head.” Page later spoke about their findings:
“We found that only 20% of tracks in our sample were ‘active,’ that is to say they sold at least one copy, and hence, 80% of the tracks sold nothing at all. Moreover, approximately 80% of sales revenue came from around 3% of the active tracks. Factor in the dormant tail and you’re looking at an ’80/0.38% rule’ for all the inventory on the digital shelf.
“Finally, only 40 tracks sold more than 100,000 copies, accounting for 8% of the business. Think about that – back in the physical world, forty tracks could be just 4 albums, or the top slice of the best-selling ‘Now That’s What I Call Music, Volume 70’ which bundles up 43 ‘hits’ into one perennially popular customer offering!”
When the new owners of Rolling Stone recently announced they would challenge Billboard’s dominance of the pop charts, what was left unsaid is how pointless a “top 100” of ANYTHING has become. As far as big-time music industry relevance, a “top 100” could probably be cut down to a “top 8” or “top 11.” Sales are so heavily concentrated at the top that you’d expect artists to start their own campaign for industry income equality. (Which, in a way, we are.)
Paradoxically, though economists are now skeptical of the Theory of the Long Tail, people – including artists and management – still base their careers on it. It’s one of the guiding, unquestioned principles of doing business in the digital world. Axioms such as “getting on all platforms” and “going where the people are listening” are music industry fortune cookies, urging everyone to fall into place in an economic system that works for almost no one. Apple and Spotify boast of their huge inventories of tracks – millions upon millions that no human could listen to – but the lion’s share of listens and revenue still go to the head.
Unless you spent a lot of time listening to early ’00s techno-utopian babble, the Theory of the Long Tail probably means nothing to you. Yet if you live in the US or Europe and you run a digital music label, you’re living it – or the fallout from it – almost every day.
In 2004, Wired magazine editor Chris Anderson proposed The Long Tail, an economic theory blown up by futurist steroids. It theorized that with the introduction of the internet, blockbusters would matter less and everyone would sell “less of more.” The Long Tail prophesied “How Endless Choice Is Creating Unlimited Demand,” according to the subtitle of Anderson’s later book, which if true would turn the field of economics on its head.
For a practical example of what this all means, compare a brick-and-mortar record store like the old Tower Records vs. an online retailer like Traxsource. Your local Tower Records had to limit its inventory to take into account a finite shelf space. Their stock might have consisted of a couple hundred records. And each record didn’t get equal shelf space: your hippie boomer parents were going to buy more copies of Beatles records than all your Belgian techno records, so the store would stock and give more attention to the former. This “artificial” scarcity of physical products taking up physical space and depriving it from other products had bent consumer behavior out of shape for basically all of history.With the internet and the creation of intangible digital products, this was supposed to change. Traxsource and other digital retailers are limited not by shelf space but by the size of their server hard drive array. And buying more server space is cheaper than building a new store.
According to Anderson, sales would in the future would represent a classic “Pareto” or “power law” demand curve: 20% of sales would be by “star” artists selling millions of copies each in our record store analogy, while 80% would consist of many thousands, tens of thousands or even millions of artists selling relatively few copies of each of their albums as the store’s near-infinite inventory meant people could metaphorically “wander about” and choose from millions of options.
This was the “Long Tail” in a nutshell, represented on a chart stretching to the right into infinity: in the future, music retailers would sell “less” copies from “more” artists. Many more.
And then this elegant economic theory ran headlong into the tsunami of shitmusic.
The Marvel-ization of the Music Industry
Nothing turned out the way Anderson predicted.
As early as 2008 – five years after iTunes was founded and we began to get actual data of how this whole thing was working – keen observers began chopping the Long Tail down to size. Economist Will Page working with Andrew Bud and Gary Eggleton was able to obtain somewhat anonymized transactions from a “large digital music provider” rumored to be either Rhapsody or iTunes itself. They had so much data, in fact, that an ordinary Excel spreadsheet choked on it.
It was a gigantic sample of… nothing.
80% of the songs had no transaction data: they had sold no copies at all.
There wasn’t any volume in the “Long Tail” and nothing had really changed – except for the worst. The actual sales data showed an even greater concentration of sales in the “Fat Head.” Page later spoke about their findings:
“We found that only 20% of tracks in our sample were ‘active,’ that is to say they sold at least one copy, and hence, 80% of the tracks sold nothing at all. Moreover, approximately 80% of sales revenue came from around 3% of the active tracks. Factor in the dormant tail and you’re looking at an ’80/0.38% rule’ for all the inventory on the digital shelf.
“Finally, only 40 tracks sold more than 100,000 copies, accounting for 8% of the business. Think about that – back in the physical world, forty tracks could be just 4 albums, or the top slice of the best-selling ‘Now That’s What I Call Music, Volume 70’ which bundles up 43 ‘hits’ into one perennially popular customer offering!”
When the new owners of Rolling Stone recently announced they would challenge Billboard’s dominance of the pop charts, what was left unsaid is how pointless a “top 100” of ANYTHING has become. As far as big-time music industry relevance, a “top 100” could probably be cut down to a “top 8” or “top 11.” Sales are so heavily concentrated at the top that you’d expect artists to start their own campaign for industry income equality. (Which, in a way, we are.)
Paradoxically, though economists are now skeptical of the Theory of the Long Tail, people – including artists and management – still base their careers on it. It’s one of the guiding, unquestioned principles of doing business in the digital world. Axioms such as “getting on all platforms” and “going where the people are listening” are music industry fortune cookies, urging everyone to fall into place in an economic system that works for almost no one. Apple and Spotify boast of their huge inventories of tracks – millions upon millions that no human could listen to – but the lion’s share of listens and revenue still go to the head.
by Terry Matthew, 5Mag.net | Read more:
Image: uncredited
