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.

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  1. identicon
    Willpower, 6 Dec 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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