Industry Perspectives: Chasing the Long Tail of Distribution
The long tail is often used to describe UGC sites such as YouTube. While this may be correct statistically, it is often used out of context. UGC demonstrates the statistical characteristics of a long tail distribution as plotted on a graph, but it doesn’t demonstrate any business or economic traits that are typical of long tail distribution as it applies to commerce. The word "distribution" in entertainment lingo connotes two things: physical delivery and monetization. UGC lacks inherent monetization opportunity. If a piece of content can’t be sold in some capacity on its own, the long tail theory of distribution will never work because profitability will always be zero or less. Recently, YouTube made major strides in its content strategy to leverage its brand and user-demand position to move up the food chain to provide premium content to its massive userbase.
The second type of content, made-for-web video, has yet to see major success. While there are small success stories, nothing has risen to the economic level of television or film. This isn’t to say it won’t happen. But maybe there is a fundamental problem in applying a hits mentality to a medium that might be perfectly designed for the long tail. If storage and distribution are free and inventory is ever-expanding, the odds of getting a hit that garners any sort of critical mass are very low, given that consumers have so much choice and the barriers to entry for competition are very low. If the internet is really a medium for long tail distribution, then maybe success will come from developing many properties that target specific niches rather than a few hits that target the masses.
Make ’Em Want It
Whether we look at the long tail as a way to monetize hits from television and film on the internet or as a way to monetize content created specifically for the internet, the bottom line is that the content itself has to have some premium value that will be able to generate revenue and, ultimately, profit. A simple test you can administer to see if your online video business has this quality is to ask yourself this question: "Would someone, somewhere, at some time be willing to buy this video?" If the answer is yes, then there is no doubt that money can be made.
The key then is to focus on profitability. Are your costs for production, licensing, marketing, and delivery going to be covered by the value of the content multiplied by the total audience? This doesn’t mean you have to sell your content directly to consumers, but it does mean that your content has inherent and perceived value to your customers. If that is the case, advertisers will want to be associated with your brand, licensees will want to lease your product, and consumers will want to spend time on your site and might be willing to pay for additional premium content.
For an online video business to be successful employing long tail economics, the same principles apply as they do for any other business. If Netflix rents movies that no one is willing to pay for and spends more on delivery and marketing than it can take in in subscription fees, long tail or not, it will not make money. If Amazon pays more to store and deliver books than it makes on each sale, it will go out of business. Applying this logic to the current state of online video leads us to believe that premium video sites that manage for profitability will win. This means not only premium hits sites such as Hulu but also sites that cater to niche audiences with professionally produced video.