Content pricing (and the long tail). iTunes price increase .
According to the theory of the long tail, sales of products follow a Pareto distribution. But, this is not yet the case because we may tend to this, but we are coming from a very different and much asymmetrical situation.
That sales do not follow a Pareto distribution is something demonstrated by Harvard Business Review:
It was a compelling idea: In the digitized world, there’s more money to be made in niche offerings than in blockbusters. The data tell a different story.
Now we found a pricing change (increase, of course) of iTunes
Apple is likely to sell the “vast majority” of the songs for 69 cents, people familiar with the matter said. But they cautioned that the handful of the most sought-after songs — which generate the vast majority of sales on the service — would likely cost $1.29. (wsj.com)
It is purely a price increase, because, if you read the empirical demonstration that the long tail simply does not work the way they told us, the 80% of the catalogue probably is making peanuts compare with the top 20%.
Update:
In this article they tell us how Time Warner is seeing an evolution that still does not confirm the long tail theory.
1 comment
I think there’s a mistake in the Time Warner article. People have misunderstood the long tail concept assuming that producers would achieve nirvana thanks to the Long Tail. As a matter of fact, Anderson’s data refer to online aggregators such as Amazon and conclusions are that this sites make a lot, not the most, of their money from the long tail. Instead of a typical Pareto curve, Anderson finds a power law curve that allow agregators to make money from products that tipycally don’t give a profit in the off-line market because of storage costs. Since storing every possible item online is virtually free, the online store can deliver any single order no matter how low demand is for that item. Summing up all those low demand orders, the store makes a huge amount of money that the off-line store can not, and that amount of money goes far beyond the 20% that a Pareto curve would anticipate for the 80% of items.
Thanks to their presence in the long tail, it’s easier for low rotation items to become a hit thanks to user recommendations and other filters, BUT that does not mean that every single item becomes profitable for the producer. Hence, for a content producer there is no alternative but to look for hits be they in the mainstream or a sustainable niche.
Companies such as Time Warner can make a lot of money thanks to their huge inventory, but that is something they have been doing for decades. Online distribution should allow this conglomarates to squeeze more profits from their inventory in the long term – let’s assume they find the right business model – but they will need the traditional hits economics to keep up competing and delivering the profits their shareholders expect.