If you haven’t already realised, nobody heads to Blockbuster anymore. Music stores are going out of business. My favourite childhood book store Borders has closed down. We have one thing to blame for this (or thank) – the Internet.
The Long Tail by Chris Anderson confirmed my already present ideas about the battle between physical media; CD’s, DVD’s, paper books, and the now dominant online market. Anderson delves into what he labels as the new economic model for the media and entertainment industries, one that is just beginning to show its power.
We live in the physical world, and until recently so did our entertainment, which was limited by the physical space on the bookshelf, or the storage space at Blockbuster Video.
South Park’s A Nightmare on Facetime depicts this perfectly, with the added exiting bonus of ghosts. Randy Marsh announces to his family that he has purchased a Blockbuster store for $10,000, a venture he believes will make them rich. His family is very skeptical, since online video streaming have made brick rental stores obsolete. This is illustrated by the eerie, abandoned-looking store, inhabited by ghosts. The citizens of South Park regard as the building as a haunted house.
As well as the space available on the shelves, the other physical restraint is the physics itself. Radio can only carry so many stations, and a cable can only carry so many TV stations. The other restriction is time. There are 24 hours in a day, thus broadcasters must prioritise some content over others. You can’t show it all. But in the online environment, where the user can choose their own content, you can. Unlimited selection is revealing the truths about what consumers want, and the online giants are taking advantage of this, leaving the traditional entertainment industry in its wake. With online distribution and retail, we are entering a world of abundance.
“People are going deep into the catalog, down the long, long list of available titles, far past what’s available at Blockbuster Video, Tower Records, and Barnes &Noble” – Chris Anderson
Physical retailers and online retailers have strongly different approaches in regard to their content. Physical retailers are all about economy, and will only carry content that can generate sufficient demand to earn its keep. If a DVD doesn’t sell more than x number of copies within a month, it isn’t worth the shelf space. On the other hand, online space is virtually free. Netflix can store as many titles as it wishes. The profit threshold is significantly lower. The first rules of the new entertainment economy is make everything available. This is how Netflix and iTunes, among other online media stores, rent or sell 99% of their content at least once a month. A major reason for this is that the provide availability of non mainstream, offbeat content, which brings continuous new customers. They embrace the niches that old-school outlets bypass. The entertainment industry thinks in the opposite way. They market the hits. Although, according to Pareto’s principle, the 80-20 rule, only 20 percent of major films will be hits. The same goes for TV shows, games and books. CD’s are even less with 10% being profitable. Netflix customers rent seven videos a month, 3 times more than traditional physical stores.
When we look at documentaries for example, the amount of them out there is way too large for any retail store to shelve. Blockbuster couldn’t shelve more than a few dozen different documentaries. In comparison, Netflix doesn’t have this physical space restriction, and the location of customers, and demand demographic doesn’t matter. What matters to them is that customers exist, anywhere. Netflix accounted for half of all US rental revenue of the documentary film Capturing the Friedmans.
Cut the price in half, not lower it, is the 2nd rule of the new media economy. The standard price for a music track is now 99c, thanks to iTunes. This sparkes debate. Artists and record labels think it should be more expensive, to maximise profit potential. Since customers aren’t paying the full amount for an album, rather only for individual tracks, they believe buyers should pay more to compensate for losing album revenue. Consumers disagree. Digital sales eliminate the need for merchandising, packaging, distribution and shelf space costs, therefore the price should be lowered. There’s always piracy too. Regardless, the fact is that ‘hit music’ is overpriced by 25% online. When you lower prices, people tend to buy more. An experiment by Rhapsody, where they lowered the price to 49c a track, sold 3 times more copies than at 99c.
One of the awesome benefits of online retailing is the smart suggestion and recommendation features. I just searched Lord of the Rings on iTunes, and received a suggestion to watch The Hobbit, Jurassic Park, Harry Potter, and Transformers. Yeah, they look great, I’ll buy them too. Giving options and suggestions of similar music, movies, or e-books provides users with the opportunity of discovery, to find something they ordinarily wouldn’t in a music or record store. Similarly, online peer reviews help a ‘maybe’ become a ‘yes’ or ‘no’ when deciding to buy a product. This is the beauty of the third rule of the new media economy; help me find it.
Sorry Blockbuster, game over.