A Lack Of Scarcity Feeds The Long Tail By Increasing The Pie

from the rethink-the-pie dept

Continuing the ongoing series on economics in the absence of scarcity, today's post is about rethinking the overall "pie." One of the problems that people have in grasping some of this is that they focus very much on the "haves" in the existing model, rather than the "have nots." In other words, in a world where scarcity is present, there are a limited set of options, and that means that many potential options never even make it to the market. This is what Chris Anderson talks about concerning "The Long Tail," when businesses are entirely hit driven.

It's what makes people ask the $200 million movie question, wondering how the same kind of huge blockbuster movies can be made without scarcity, or how rockstars will reach rockstar status. However, part of the problem with this is that while scarcity may create these types of huge hits, and abundance may decrease the likelihood of any individual work to be that same kind of hit, it expands the overall market by making it much easier for the long tail to exist. Without having to worry about stocking a limited number of shelves, an Amazon or a Netflix can carry unlimited products -- opening up an entirely new market for movies that don't need to reach the same level of blockbuster to be a success. In the same sense, a record label no longer needs to churn out a huge hit in Britney Spears to make up for all their duds, but can invest smaller amounts in many, many more artists, recognizing that it's possible to be modestly successful with many more artists, adding up to a much bigger pie overall -- and a much less risky business, since there's less reliance on just a few big hits.

What's important here is the recognition that as you remove scarcity from the equation, it may dilute the huge mega-successes, but inflates the ability to have a lot more moderate successes that add up to a lot more overall. The existing system, with scarcity, is often a bimodal distribution. There are the haves at one end, and the have nots (or the hoping to be the haves) all the way at the other end. However, as scarcity is removed, the distribution morphs into the famed power law curve. There are still hits at one end, though, there may be fewer of them. However, rather than simply jumping all the way from the super successful to the poor, starving and hopeful, you get a much nicer distribution from top to bottom of super successful, to moderately successful to less successful -- but with a much great overall value under the curve.

Unfortunately, many of the complaints about economics without scarcity focus on the fact that some at the high end of the bimodal distribution (the "rockstars" or the "mega hits") will lose some of that status without forced scarcity. But, the problem is that argument completely ignores what it does to the rest of the curve, moving up many who were at the other end (the poor, starving artists) into a position to be able to actually create a lot more product, rather than having to go out and find "a real job" that pays them a regular salary. The only "losers" here are a few people at the very, very top. Everyone else, however, benefits -- and the net benefit is tremendous. It does involve a shift in business models for those who relied on the hits, but it's a huge opportunity to expand a business while making it a lot less variable and a lot less dependent on catching one or two big hits to make the numbers work.

If you're just joining the series, you can catch up here:


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  •  
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    CP, Dec 6th, 2006 @ 12:38pm

    Two words. . .

    G R E E D and E G O

    That's the 2 reasons those at the top fight it kicking and screaming. I mean, come on, if there's no more Brittney, who's flaming snatch will we be able to look at on the Internet???

     

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    dorpus, Dec 6th, 2006 @ 12:42pm

    Relative Scarcity

    Abundance raises standards, and consumers demand better products, which are always scarce.

    So yes, the economics of scarcity applies, as long as human nature is what it is.

    Decades ago, people were easily impressed by terrible food, terrible movies. Our tastes today will no doubt seem poor and primitive to future generations.

     

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    another, Dec 6th, 2006 @ 12:53pm

    No No No

    The long tail has absolutely nothing at all to do with blockbuster movies or rockstars. It has to do with profits from an unlimited, no additional cost of carrying product type of environment. Blockbusters will always be blockbusters, rock stars will be rock stars, but if your carrying costs for seldom purchased content generates just a tiny profit, in the end it can add up. Does that mean that no one would try to create a blockbuster movie or be a rock star? Of course not. Anyone that thinks the rock star and the blockbuster is going away is either stupid or nuts.

     

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    Sancho, Dec 6th, 2006 @ 12:57pm

    good... but now what

    our "tastes" today already seem poor to me, and i know im not the only one. perhaps the long tail will not only even out the playing field so that a larger variety of artists are heard and recognized (fingers crossed aye) but also these boring myths about what 'we' like and think is 'good' will be destroyed.

    seriously pragmatic models are necessary though, and someone is gonna hafta kick them into gear soon so this doesn't turn into all the old giants stumbling around having coronaries about things they can't do anything about, while all the web-techies are having panik attacks about who said their idea first, while no one is actually putting a large number, of high quality, lower budgeted films (for example) into production.

     

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    Sancho, Dec 6th, 2006 @ 1:02pm

    -another

    big big stars or films are frequently created by the media industries because of the elasticity of cultural commodities. (there are the occasional ones that are proportionate to talent/story but those are jus down to the mystery of life)

    Huge blockbuster billion dollar generating films are necessary for Hollywood because they cover the costs of all the other films they make that are cr*p, not only will these levels of production be difficult to justify because of the effect piracy/digital technology is currently having on copyright, but also because, if mike's point plays out, they wont need to anymore.

     

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    Tyshaun, Dec 6th, 2006 @ 1:29pm

    KO...

    So I agree with your underlying thesis except if you go to a model emphasizing multiple investments instead of a single large investment (in a star or movie or whatever) you seem to underemphasize the importance of advertising. Blockbusters don't make money because it cost so much to make them, they make money because they usually have advertising budgets proportional to their production budgets. How would you mimic this using your scenario?

    I abosolutely agree that diversification is always a good idea, but the first thing they teach you about product marketing is that people can't buy your product if they don't know about it.

     

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    Michael Long, Dec 6th, 2006 @ 1:55pm

    Tail full of... it.

    While stretching the tail has value in potentially increasing visibility for "smaller" pictures, you've conveniently ignored one of Anderson's Long Tail tenets: "All too often, the tail is full of crap."

    In fact, one has only to spend a few minutes browsing something other than the "most popular" list at YouTube to realize that almost 99% of the content could easily be recycled as human waste products.

    Or you could spend a summer, as I did, reading the "slush" pile of unsolicited manuscripts at a major publishing house. Or go watch a local "stock" production of some play or listen to 50 local garage bands audition for some gig. Or watch a dozen "indie" films at Sundance.

    And if you do, you begin to realize that one of the functions of a publisher or producer, and one we pay for, is to weed through and eliminate all of the unreadable unwatchable junk for us.

    So when discussing "scarcity" and content, one needs to realize that "good" content is scare, great content scarcer still, and the people capable of creating either one scarcest of all.

     

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      Anon Cow, Dec 6th, 2006 @ 3:19pm

      Re: Tail full of... it.

      The long tail isn't "full of crap" it is just much more fragmented so it appears, if taken as a whole, to be a bunch of crap.

      But I'll bet that there is a non-top 100 segment of videos on YouTube that would be interesting to you and a small handful of people that share a particular interest (for example, I anonymously admit that I love "ghost riding the whip" videos, talk about your long tail market segment).

      The challenge with the long tail is, as a consumer, weeding thru that "crap" to find the long tail gold nuggets, and, as a seller, finding an effective, non-traditional way to find your highly fragmented demographic.

       

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    DV Henkel-Wallace, Dec 6th, 2006 @ 1:57pm

    Where's the (fake) backlash?

    Hey mike, when the number of TV channels started to grow from the "standard" 4-5/market of the 60s and 70s I saw articles bemoaning the end of the "water-cooler" shared culture -- the whole community having seen "I love lucy" or somesuch I guess.

    Everyone got over that, but the next step is a YouTube/Myspace/Blog world where everyone belongs to five or six "communities of interest" each of which has itself only a few members.

    It's a world which sounds good to me, but I wonder if it would be. Mass media was an essential part of nation-building and, frankly, peace on a larger (county-sized at least) scale. Will that come to an end?

     

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    Willpower, Dec 6th, 2006 @ 2:18pm

    What scares the Music Cartel.

    You are now beginning to touch on the part that I think really scares the big record labels. I don't think piracy scares them nearly as much a losing control of their Music Cartel.

    Up until recently most people found new music they like by listening to the radio. So to have a hit you had to have air play. It was nearly impossible for an independent record label to get air play, no matter how great the song was. What got played was controlled by the big 4 record labels, allowing them a Music Cartel. Even if you weren't fond of a song at first, if you heard it enough times, some would grow to like it and make it a hit.

    Along came the interactive internet and there is no technical reason people couldn't make their own play list instead being force fed a play list on the radio. The record companies could have embraced the technology, giving people what they wanted, while making sure they found some way to make even more money off the new model.

    Instead they fight the technology every set of the way, doing their best to make it unworkable. For instance when streaming radio came out, they insisted that people not be allowed to create their own play list and not even let people know what songs would be coming up. They would still make their money from advertising, but they wanted to make it as unattractive as possible if they couldn't control it.

    The need for large record labels in the distribution of music is already gone and they are fighting tooth and nail to maintain control with their Cartel. There is still a place for firms with large coffers in the marketing and development of new groups. Up until now the marketing and development was an expense that was more than recapped by the profit they made from distribution.

    Even the mega hit artists make more money from concerts and such, than they do from record sales. Most of the profit from record sales goes to the Cartel. So even if the songs are given away for free, the artists can still become rich and famous, but the Cartel will be broken.

    I don't think the executives at the big 4 are naive at all. They can see the writing on the wall. They are just trying to delay the inevitable as long as they can, making as much money for their shareholders as they can, for as long as they can. Honestly I am surprised they have done this well at it for this long. As long as they can convince people that the artists won't make money if the model changes, they are succeeding.

     

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    MyNameIsMatt, Dec 6th, 2006 @ 2:36pm

    The changing tail

    Michael Long, I think what you see isn't so much the benefits of the long tail, but the establishments that have grown up around the current scarcity models. People have to be filtered through standard means of approval which doesn't fit everyone's likings as someone has always controlled those means, no matter how small, for their own interests.

    Would Ze Frank ever become a success if he wasn't able to publish himself on the web? He's at the end of the long tail, and has moved his way up. People found him even though there wasn't a major advertising campaign driving his show.

    When the long tail opens up, it opens up the standards placed on the goods. You see crap when you look around because you see 500 copies of Mrs. Spears because that's the formula for success. When new formulas of success filter through, I'll hopefully be able to find a show and a band that I like more than once every 10 years.

    When that happens, you open up the market, and the long tail fills out in the middle. Right now, the long tail is very steep from the top to the middle, and very thin at the end. As we enable the long tail, though, it'll grow in the middle, possibly shorten the top because we pay more attention to that which we actually care about, and not what the advertising tells us to care about.

    People will find what they want and like whether it's advertised or not, and as advertising big brands becomes less effective, you increase the effectiveness of smaller brand advertising.

     

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      Tyshaun, Dec 6th, 2006 @ 4:00pm

      Re: The changing tail

      Michael Long, I think what you see isn't so much the benefits of the long tail, but the establishments that have grown up around the current scarcity models. People have to be filtered through standard means of approval which doesn't fit everyone's likings as someone has always controlled those means, no matter how small, for their own interests. Would Ze Frank ever become a success if he wasn't able to publish himself on the web? He's at the end of the long tail, and has moved his way up. People found him even though there wasn't a major advertising campaign driving his show. When the long tail opens up, it opens up the standards placed on the goods. You see crap when you look around because you see 500 copies of Mrs. Spears because that's the formula for success. When new formulas of success filter through, I'll hopefully be able to find a show and a band that I like more than once every 10 years. When that happens, you open up the market, and the long tail fills out in the middle. Right now, the long tail is very steep from the top to the middle, and very thin at the end. As we enable the long tail, though, it'll grow in the middle, possibly shorten the top because we pay more attention to that which we actually care about, and not what the advertising tells us to care about. People will find what they want and like whether it's advertised or not, and as advertising big brands becomes less effective, you increase the effectiveness of smaller brand advertising.

      1. Who is Ze Frank (seriously, I've never heard of them and I'm on the net all the time)?

      2. You assume the average person "wants" to put the effort in to find content that fits their interest, and I don't think that is necessarily true. It has been shown time and time again that most people are sheep and will follow the herd to whatever they are told is the latest greatest thing. Sure, there will always be those who will seek out things that interest them, but should this really be advocated as the preferred model for content distribution/funding in the future, supporting niche market artists to the exclusion of proven, albeit formulaic, ones?

      In the end, remember the job of a corporation is to generate profit, not proliferate good content. If both can be done, they will do it, but the former is far more important than the latter.

       

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    anonymous coward, Dec 6th, 2006 @ 3:12pm

    doesn't the "long tail" predict the demise of the major music labels? their one real resource that could not be replicated by an individual artist is their huge marketing clout, but as musical tastes become more and more fragmented and informal "tastemakers" gain more and more influence, what is the upside of giving a huge majority of your profits to a label?

    also predicting major label demise is that if an artist is lucky enough to establish himself as an "evergreen" like Pink Floyd or Moby, you can afford to forego immediate commercial success in order to own all the profits from that long tail.

     

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    Stu, Dec 6th, 2006 @ 3:44pm

    Limited number of shelves

    Mike said, " . . Without having to worry about stocking a limited number of shelves, an Amazon or a Netflix can carry unlimited products . . . ."

    Looks like what eBay provides to it's sellers. And buyers can find the "not blockbuster" items they're looking for.

    Here are some eBay stats (as of Nov. 2002) that make the point:

    - eBay owns no products and has no inventory.
    - 150,000 people have given up their jobs to become full time eBay vendors.
    - eBay has 50,000,000 users.
    - There are 12,000,000 items for sale every day.
    - Vendors sell $41,000,000 of goods daily.
    - A motorcycle is sold on eBay every 18 minutes.
    - An SUV is sold on eBay every 30 minutes.
    - eBay is the largest seller of used cars, motorcycles and auto parts on the internet.
    - NASA shops eBay for obsolete computer parts to keep the Space Shuttle flying.
    - IBM, Disney and other companies now sell on eBay. They get the same terms from eBay as all other vendors, regardless of size.
    - For every million transactions, 30 are unsatisfactory - that's .00003.
    - eBay stock is worth more than Bloomingdales, Macys, Sears and Toys-R-Us combined.
    - In 1998, 8% of eBay items consisted of Beany Babies

    Those are old stats - they're probably more impressive now.

     

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    MyNameIsMatt, Dec 6th, 2006 @ 4:56pm

    It's not about the average person

    The Show with Ze Frank
    http://www.zefrank.com/theshow/archives/2006/12/120606.html

    Addressing #2, it's not about the average person. The average person will go to their network of contacts, various sources like newspapers, friends, family, daily blogs, etc. and naturally find interesting things that are of value to them. 90% of the population won't contribute to finding the truly great finds, but right now .001% define what we all should see, and it's based on their perceived values of lowest common denominator consumer.

    Good content is good business, and profits are a result of good business, so any company focused on profits will invariably lose sight of what produces those profits.

    Bad content is bad business, and it's not terribly hard arguing that that's the key problem in the music and movie industries along with the new competition from long tail companies. What the long tail does, which gets some of its power from a model of abundance instead of scarcity, is it allows a company to profit from obscure and less popular content by opening up access to that content. It follows that such content will start to thrive as the market is no longer squeezing out those that cater to a small percentage of interests.

     

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    a, Dec 7th, 2006 @ 7:38am

    The long tail won't generate profits for the creators of content as long as you think that that content will be created by the mass market. The profits will go to the Googles, the Fox Studios, the NBC's of the world that aggregate that content. NBC can take advantage of the long tail by putting old episodes of Gilligans Island (forgive me if that wasn't NBC) that are just sitting in their archives. Someone out there would pay a buck or two to get the series, and considering there is virtually no cost for them to ship it to a consumer. Now take that someone out there, multiply that small percentage of consumers that would want it against the population of the planet, throw in all the other content they have and you can generate some real profits.

    User generated content might generate small profits for the creator, but most of the profit will go to the aggregator. Google can sell ads around searches for content, drive traffic and increase clicks. Google will make money, but the content creator coming from the masses really won't.

    The issue of the long tail benefits the labels, benefits the networks, benefits the network provider, but user generated content creators shouldn't quit their day job. Blockbuster movies won't go away, because the blockbuster movies of today will be long tail generators in the future.

     

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    Clive Young, Dec 7th, 2006 @ 8:47am

    Concert Touring

    While the philosophy of the Long Tail and leveling the playing field for the little guy and all the rest is a very sound and democratic ideal, there are/will be major downsides to it--such as the cultural death of music.

    This is due to an area which I happen to cover as a journalist: concert touring. Most of the highest grossing tours these days are by older, baby-boomer favored acts, and in recent years, there have been increasingly fewer new acts that can fill arenas, stadiums and amphitheatres. Much of that can be blamed on lousy albums, poor artist development on the labels' part and skyrocketing ticket prices, but it has all resulted in dropping concert attendence for the last few years. The threat of the Long Tail, however, will make things considerably worse.

    That big, fat, middle part of the curve will make a mess of touring, because most of the acts that will fit in that area won't be able to fill a decent-sized venue. This has nothing to do with talent, and everything to do with proximity of one fan to another. Once you factor in the coming rise in label-less artists--musicians and bands who can make a living on having 30,000 fans worldwide buying their songs on iTunes, etc.--the days of the big arena tour, or even a gig at your local 3,000-seat theatre, are basically over. You'd never be able to get enough fans in one place to justify mid-level touring.

    While neither you or I will be shedding a tear for the overpaid rock stars of the world making less money, this will have a demonstrable effect on the livelihoods of all the people who work in the tour and venue industries--roadies, sound companies, lighting companies, truck drivers, caterers, the beer guy at your favorite venue and many, many more. Literally hundreds of thousands of people in the U.S. alone--and as a result, their families--will be hit financially.

    All this affects the concert-going experience, already getting hurt from the aforementioned issues (ticket prices, lack of acts), which means fewer and fewer people will go to see live music. That will only sink music even further into cultural irrelevancy, because live performance is the heart of what music is about; take that out of the equation and there's nothing to make future generations bond with music the way that the boomers and Gen X did. As it is, to many kids today, music is the soundtrack to the games on their Xbox, not something to be enjoyed on its own. That's cultural irrelevancy.

    And all this doesn't even begin to address the time needed to sift through all the competing music and media out there to find something you like. Bring more things to eyelevel and it becomes intimidating to even decide to try and dig through it all. Too many people will shrug and decide not to bother making the effort to find new music, which is a real shame. You have the time and inclination when you're younger, but to tell someone who has a family, a mortgage and a leaky roof that they have to fix that they also have to dig through websites and other media just to find a few good songs for their iPod? They won't bother--free time is far too scarce. This winds up as just another strike against music's place in our culture

    I seriously believe that this potential influx of acts into the middle of the curve will financially hurt a lot of people and culturally destroy music. While I realize this is a worst-case scenario, I certainly hope that the Long Tail theory and its results turn out to be a lot of theoretical hooey.

     

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    mousepaw, Dec 7th, 2006 @ 11:21am

    Re: Clive Young's comment

    You're so right.

    Add to that the seeming fragmentation of our society (people don't get together as often; people are less interested in their neighbourhood...) where people just don't get to know each other anymore (I guess I'm talking larger cities) and there is no one to introduce new music (something my brother was great at). I find myself sticking to the tried and true music that I grew up with: Pink Floyd, Supertramp, Yes, Genesis, etc. and not venturing forth to find something different because the prospect is daunting. I used to be able to go into a music store and listen to some of an album before I bought it. Can't do that anymore. Unless I start listening to weird radio stations (we used to have a new-music-only station close by) I won't be exposed to it.

    I was never much of a concert-goer because the bands changed their music, were wasted on stage and it wasn't comfortable: standing all night to hear ear-splitting noise, in a tight crowd, trying to get out of the parking lot, etc... Hassle city.

     

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    MyNameIsMatt, Dec 7th, 2006 @ 12:12pm

    Concerts will thrive

    "As it is, to many kids today, music is the soundtrack to the games on their Xbox, not something to be enjoyed on its own. That's cultural irrelevancy."

    This is just false. Patently false. Stadium filled concerts may become culturally irrelevant, but not music for music's sake. There are still plenty of highschool bands out there, and plenty of teen pop being produced that doesn't get on to game consoles.

    Also, I disagree with your vision of concert losses. Again, while big band sell out concerts may be of the old, what people really want are small intimate venues. The only thing holding that back is the idea that only good concerts have one headline band in a stadium of 50k people. That's old business model mentality, and as access to a larger group of bands opens up, I foresee concerts, at least more locally, thriving.

    "You have the time and inclination when you're younger, but to tell someone who has a family, a mortgage and a leaky roof that they have to fix that they also have to dig through websites and other media just to find a few good songs for their iPod? They won't bother--free time is far too scarce. This winds up as just another strike against music's place in our culture"

    How is this any different from today's situation? It isn't. Actually, with iTunes it's insanely easier, and my older friends have reinvigorated their music collection because of it. In the past, they'd have to goto the store and buy a CD. How would they know what CD to buy? Listen to music on the radio or goto a concert. Very time consuming. Now, they can preview and buy rather easily at work and home. I see the exact opposite happening as to what you see coming. Music has much to gain from the long tail.

     

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    Shun, Jan 18th, 2007 @ 4:12pm

    Vested Interests

    "The only "losers" here are a few people at the very, very top."

    Really? and who do you suppose is trying to stop innovation, stifle creativity, and sue anyone with a worthy idea?

    Who killed the electric car? who indeed...

     

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    toxicator, Apr 28th, 2007 @ 7:35am

    screw you, i have pirated all the records i want, i will never listen to the radio nor buy any records again. Viva Internets! Free music for all!!!!

     

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    Washu, Jun 12th, 2009 @ 10:53am

    In the old days, we called this "ad-ver-tis-ing"

    Funny how everything old is new again.

    There's an old joke that goes with advertising. Someone watches an advertisement on tv for, say, a McWhatever's burger, then goes to the fridge for a bite to eat.

    What they're eating is clearly not of the same brand that's advertised. Yet, the advertisement has prompted the consumer to want something they didn't before.

    This is an obvious example of increasing the pie, and, yes, it did happen before the internet and rocks were invented.

    I consistently find it amusing that conventionally accepted business models are not questioned, when they are just as applicable to arguments used on "new" technology.

    The more things change, the more history we're doomed to repeat.

     

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    Paul Freeman, Dec 27th, 2009 @ 11:23pm

    Speculative, not empirical

    I think there is some unfounded speculation in this thesis, and the 'long tail' can be viewed from a number of perspectives. As I've increasingly experienced that I am a producer in an increasingly infinite market of producers its clear to me that we are moving into an economy with less equality in outcomes, even if there is more equality of opportunity. The long tail really means a huge and very fragmented market which is profitable for eg: Amazon or Ebay but which vastly increases competition for the smaller business or creative, and therefore makes it easy for the amateur to make pocket money, while making it nearly impossible for the mid-ranking to make a professional living. This is a great system for e-marketers and consumers and a poor one for producers unless they are superstars.

     

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