The Indie film industry: still looking for its long tail

What happened to the idea of the "long tail", as popularized by Chris Anderson over a decade ago? The very fact that this blogger feels the need to revisit the notion suggests the extent to which it has fallen into disfavor. In brief, Anderson’s idea contrasted the manner by which goods are typically sold in a bricks-and-mortar environment from the potential for distribution in an on-line world. The principal limiting factor in a bricks-and-mortar setting is that only a small number of products can be displayed in any given store; even within these displays, the specific placement can materially affect the sales potential of that good.

What follows is that only a small number of products will be available for purchase and success is built on selling a large quantity of these limited product options. Thinking in terms of a statistical distribution, from the point of view of product sales, the two tails fall very quickly from the elevated and narrow central tendency. There are few sales beyond those enjoyed by the small number of market leaders.

By contrast, in a long-tail world, where digital distribution allows an almost unlimited number of products that can be displayed on digital “shelves”. As such, as explained by Investopedia,

"... products in low demand or with low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters but only if the store or distribution channel is large enough.”

In other words, the sales of these items take place at the tails of the distribution. Unlike the bricks-and-mortar situation, consumers are navigating to on-line commerce, favoring niche products and markets over traditional main types.

As such, as optimistically characterized by Investopedia --

“…the demand overall for these less popular goods as a comprehensive whole could rival the demand for mainstream goods. While mainstream products achieve a greater number of hits through leading distribution channels and shelf space, their initial costs are high, which drags on their profitability. In comparison, long tail goods have remained in the market over long periods of time and are still sold through off-market channels. These goods have low distribution and production costs, yet are readily available for sale.”

The problem with the notion is that it has proved difficult, extremely so, to identify instances where the long tail has taken place. A reminder was reported in the February 25th issue of The Economist (Print title: “Indie blues: happy ends are rarer than ever for those trying to profit from Indie films”) in connection with the indie cinema industry. Short for “independent”, the indie film business refers to a movie that has been produced outside the major film studio framework. Distribution will also likely take place outside the major channels. Indie films are also usually characterized by lower production costs, limited first release and greater diversity of artistic expression.

While not common, an indie film on occasion can rival a film produced by a major studio, if it has sufficient financial backing, effective distribution and promotional buzz. The winner of the most recent Oscar awards was best picture was “Moonlight”, which shares indie film characteristics. Another indie movie that received an Oscar was the film “Manchester by the Sea.” With movie-watching no longer solely a cinema-based activity and on-line viewing taking place via a number of digital platforms, one might be tempted to imagine that the long tail model has been a boon to the indie film business.

According to the article, however, the answer would appear to be “no”. In the words of the piece—

“For every success story, there are thousands of indie films that go unwatched. The digital age has made it easier than ever to make a film, but also harder than ever to break through the clutter of entertainment options to an audience. Chris Moore, a producer of “Manchester by the Sea”, compares the output of indie films now to trees falling in the forest. ‘Nobody is making a dollar off this business’, he says.”

It turns out that for all the on-line options, success of an indie film still tends to rely on exposure to a cinema theatre audience, which is diminishing, especially among young viewers, and the DVD market, which is in freefall. Seen in this way, indie films look a lot like their major studio competitors, just less expensive in the making and with even a lesser likelihood of success.

But what about the potential for the long tail to ultimately make-up for these headwinds. Again, in the words of the magazine—

“But most minor films disappear online, since a viewer can scroll through only so many options. Even the streaming sites themselves, says Anne Thompson of IndieWire, a website, admit that ‘a cold start on one of their platforms can be very cold indeed’”.

All in all, it would seem that, as far as the indie film business is concerned, the long tail is no tail at all.

Photo on lower left by Alex Dunkel

Free! The changing countenance of monetisation in a digital world

Chris Anderson, the editor of Wired magazine, has just published a new book, entitled Free!, which attempts to shed light on the changing countenance of monetization in the digital world. I have not read the book yet but, based on an interview with Anderson that was broadcast as a Bloomberg podcast last week, it appears that the book is devoted to the issue that, in the digital world, contents are available at little or no cost to the user. Anderson then goes on to explore the implications of this observation.

As I understood from the podcast, because the marginal cost of each item of content is zero, or nearly so, Anderson suggests that the appropriate marketing approach in such circumstances is what he calls “freemium”. In the bricks and mortar world, a company would promote its product by distributing for free a small percentage of its products (say 10%) in order to develop sufficient customer buzz and then to recoup the investment by (it hopes) increased sales. The basis for the model is that the marginal cost of each such unit is material, such that the person will have to rely on sales of the remaining 90% in order to achieve a profit.

In the digital world, however, the circumstances are reversed. Because the marginal cost of production and distribution is so low, the appropriate strategy is to distribute a large quantity of the product for free, and then ideally to recoup by sales of relatively small number of units, where the after-cost-of-sales-of-goods profit for each unit sold is large. It appears that the book is available for free in a limited fashion for online reading (it was in fact blocked in my geographic area), and there is a form of variable pricing for hardback and soft back versions.

What particularly grabbed my attention, however, was Anderson’s observation about the possibility that what is particularly attractive for him is the possibility of making substantial sums from ancillary activities, such as speaking engagements and the like. Here, the profits from such ancillary activities will presumably go straight to the author only. That is the rub for me. What happens if the “freemium” model does not prove economically successful for the publisher, but the ancillary activities prove lucrative for the author?

If so, the day may not be too distant where the publisher for the three-dimensional copy will become increasingly irrelevant to the book business. Once promotion and distribution of book titles on the internet are perfected, the publisher’s role is severely diminished. Revenues are garnered by differential pricing for on-line reading, Kindle-like downloads, and permission to make a single copy from the on-line text. For the really successful books, the author and his ancillary activities may become the prime source of revenue. The publisher is irrelevant.

In such a case, we will have a reversal of the balance of interests in book publishing from the model that prevailed in the 16^th-17^th century, in the run-up to the Statute of Anne. In that period, publishing was largely about regulation and censorship by the Crown, and profits for the guild-protected publisher. The author, to the extent that author-based contents were published, was largely irrelevant. By contrast, in the Free! World of Anderson, the public’s interest is directed supported by the author only, who acts both as content creator and distributor (not to mention personal celebrity, if the book enjoys success). Like the author in the pre-Statute of Anne days, the publisher of the not-to-distant future becomes largely irrelevant.

With such an eventuality lurking, I am compelled to express a word of caution. Being a hopeless romantic about books and publishing, I still believe that a three-way relationship between the public, the author and the publisher is in the best interests of all three. If so, and if the ancillary book-related activities of the author become a material part of the book’s revenues, I would suggest that the better arrangement is to provide for a sharing of these revenues between the author and publisher with respect to revenues received by the author in connection with the author’s book-related ancillary activities. In this way, the publisher will have a greater incentive to carry out its distribution and sale function, while taking into account that the on-line world will likely materially alter the nature of the publishing business and the sources of publishing profits.

For a review of the book Free!, see here