google haas summit 10/09 -- why the long tail business model is flawed

Copyright Jeff Ulin 2009. All rights reserved.

Why the Long Tail Business Model is Flawed

Jeff Ulin

GoogleplexOctober 1, 2009


So…Why Won’t the Long Tail Work?

• Long Tail: Consumption shift to niche product with infinite shelf space, and infinite shelf life– More product sees light of day– All product always available

• Will these dynamic changes expand the pie, and improve ability to monetize?

http://animaldiversity.ummz.umich.edu/site/resources/luis_tejo/lemur.jpg/view.html

http://www.jordankasteler.com/images/long-tail.gif


No. But why is that the case?

• Why is easier, better, broader access to all content less profitable to content suppliers?

• To understand, need to understand the notion of windows, and perhaps more importantly the values underlying windows


Long Tail is already exploited via windows

• Traditional media is already exploiting the long tail of most of the product people want to see– Video: greater depth of content than theatrical– Pay TV: fills up airtime with hits and misses– Free + Cable TV: syndication and off peak slots

provide filler space for product not warranting premium placement

• Windows already optimize

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http://en.wikipedia.org/wiki/File:Nick_at_nite.png


Theatrical

Video6 months

3 months Pay TV

3 months

Rested (“Black”)

6 months

15 months

PPV(residential)

Free TV

Multiple yearsSegmented Periods Licensing Rights for 5-10 years

Historical Film Windows


Change in Points of Access


The Online Platypus- Wide Tail

http://images.google.com/imgres?imgurl=http://upload.wikimedia.org/wikipedia/commons/f/f2/Platypus.jpg&imgrefurl=http://commons.wikimedia.org/wiki/File:Platypus.jpg&usg=__SjyS5gy7zDvUN6Iv3Lgyyz3PLrU=&h=538&w=800&sz=121&hl=en&start=9&um=1&tbnid=IcTtmz7FKBrbgM:&tbnh=96&tbnw=143&prev=/images%3Fq%3Dplatypus%2Bimages%26ndsp%3D18%26hl%3Den%26rlz%3D1T4GGLL_enUS301US304%26sa%3DN%26um%3D1

http://images.google.com/imgres?imgurl=http://hawtaction.com/2008/06/23/platypus%25202.jpg&imgrefurl=http://hawtaction.com/2008/06/terra-platypus.html&usg=__Wsa5PSGTZeEzVwK125lffY7B-lU=&h=208&w=350&sz=13&hl=en&start=18&um=1&tbnid=KSKG-ta3mjfiWM:&tbnh=71&tbnw=120&prev=/images%3Fq%3Dplatypus%2Bimages%26ndsp%3D18%26hl%3Den%26rlz%3D1T4GGLL_enUS301US304%26sa%3DN%26um%3D1

http://www.veeriku.tartu.ee/~ppensa/platypus.jpg

http://www.enchantedlearning.com/pgifs/Platypus_bw.GIF

http://images.google.com/imgres?imgurl=http://animal.discovery.com/tv/planets-best/aussie-animals/mammals/gallery/platypus_zoom.jpg&imgrefurl=http://animal.discovery.com/tv/planets-best/aussie-animals/mammals/platypus.html&usg=__YrpmeF6hjylJCrGXSE6kOyGrpl0=&h=380&w=540&sz=81&hl=en&start=81&um=1&tbnid=OToDfUhjI3NQVM:&tbnh=93&tbnw=132&prev=/images%3Fq%3Dplatypus%2Bimages%26ndsp%3D18%26hl%3Den%26rlz%3D1T4GGLL_enUS301US304%26sa%3DN%26start%3D72%26um%3D1


Window system caters to infinite shelf life

• Window system = lifecycle management• With online, the tail is wider (more product)

– But not necessarily longer (especially for product that people want to see)




More content, easier to access…what’s the problem?

• Value is driven by the whole ecosystem, and it is not just about longer and wider

• Value is driven by a unique matrix:– Time– Exclusivity– Differential Pricing– Repeat Consumption


Ulin’s Rule of Monetization

Four Drivers of Distribution Value

Mix of Factors Drive Value

TIME Immediacy to see + Longtail

DIFFERENTIAL PRICING Buy a ticket, rent a DVD, see free on TV

REPEAT CONSUMPTION Theater, Video, TV

EXCLUSIVITY ‘only see it here’ competitive effect


Online is attacking the pillars holding up the window system

• One leg (factor) not easily substituted: in the ecosystem, the legs work better together– If you see pressure on one of

the legs/value pillars, then likely a window tussle between old and new

• Online tends toward free and non-exclusive

• Why not migrate what’s worked offline to online, marrying the best of optimization with easier access and lower transaction costs?

Four Drivers of Distribution Value

Mix of Factors Drive Value

TIME Immediacy to see + Longtail

DIFFERENTIAL PRICING Buy a ticket, rent a DVD, see free on TV

REPEAT CONSUMPTION Theater, Video, TV

EXCLUSIVITY ‘only see it here’ competitive effect


That’s what is happening


Same Market (sort of), New Name

Convergence Lexicon

Streaming Download VOD New Technology

TV Sell Thru Rental Changing traditional marketVideo Video

Electronic On New Name MarketInternet TV Sell Thru Demand


User options can migrate

• Netflix: subscribe to rent

• Amazon: a la carte purchase

• Hulu + YouTube: free ad supported (TV)

http://upload.wikimedia.org/wikinews/en/6/66/YouTube_logo.svg

http://www.google.com/imgres?imgurl=http://playstationlifestyle.net/wp-content/uploads/2009/06/hulu-logo.jpg&imgrefurl=http://playstationlifestyle.net/2009/07/15/hulu-explains-decision-to-block-ps3-owners/&h=289&w=650&sz=7&tbnid=bY3MAmK52hQYIM:&tbnh=61&tbnw=137&prev=/images%3Fq%3Dhulu%2Blogo&usg=__ctEAK4PtSFv0mQxr5l3D9hzUhdQ=&ei=kTexSrjJC5HUsQPOztzFCw&sa=X&oi=image_result&resnum=2&ct=image

http://www.google.com/imgres?imgurl=http://www.pycomall.com/images/P/amazon.jpg&imgrefurl=http://www.pycomall.com/product.php%3Fproductid%3D18391&h=400&w=400&sz=24&tbnid=WjS_HPV9BQ8UWM:&tbnh=124&tbnw=124&prev=/images%3Fq%3Damazon%2Blogo&hl=en&usg=__Jc8coRS7fucd8Xu1ntVUnkZ24HU=&ei=rTexSpeOL4HiswObq-y3Cw&sa=X&oi=image_result&resnum=2&ct=image


But Value Undermined if Persistent VOD–Windows Still Optimize

Netflix Subscribe to Rent (Subscription)

Amazon Purchase to Own (VOD)

Hulu Ad Supported (like Free TV)

Supports:

•Differential Pricing

•Repeat Consumption

•Immediacy and Long Tail

•Exclusivity

But only if Window

Hulu – “catch up” = immediate

– Long Tail = can undermine repeat consumption in other exclusive markets (e.g., Pay TV, Syndication)


Huge Value at Stake- = $ in TV and Video fueled by windowing and exclusivity

• Pay TV networks– Will pay $1B for single studio output. But only if exclusive

• Free TV (syndicated + international)– Will pay $$ which amortizes production cost, and can

be holy grail, but only if exclusive• Video: About ½ of

Studio Total Revenue(Courtesy of SNL Kagan)


Already multiple bites at the apple:2nd and 3rd bites often the biggest

• Persistent VOD access will shrink the overall pie– But, windowed and

managed VOD access will preserve

– Under a windowed system, the 2nd and 3rd

bites can be larger

Bite 1

Exclusivity & Competitive Effect make value disproportionately large

Bite 2 Bite 3

Nibbles

Long Tail

BiggerBite 1


Pay TV Consequences

• Pay TV in DANGER if Long Tail VOD applied absolutely. Why?

• Pay TV = aggregator of content– If VOD = same content, what’s the value of a

Pay TV service?– Pay TV may only survive by original

programming, which is already a key driver in subscriptions.

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http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/03-31-2008/0004782594&EDATE=

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Buyers and Advertisers ≠ Infinite

Number of web pages outstrips number of viable advertisers

Infinite Shelf Space & Infinite Content

$


More product, if niche, just means that it may be fighting for marginal $

Persistent VOD Model– a natural outgrowth of the long tail--eliminates certain value drivers and likely leads to smaller pie for content owners

The YouTube challenge? Maybe the service wins, but not necessarily the premium content provider

Long and Wide Tail adds infinite competition to an already marginalized tail

http://www.jordankasteler.com/images/long-tail.gif




The Answer? No Magic Bullet

• Online is just another ecosystem through which the value drivers operate

• Amazon – own; Netflix – subscribe; Hulu – FOVD (TV)

• Eliminating shelf space and transaction costs, more content (Platypus wide tail) can be pushed through the system indefinitely (long tail), – But the system needs to incorporate the content value

drivers to optimize: Manage, don’t discard windows• Catch Up is a Type of Window

– More content, always available, will not maximize• Maybe an aggregation service may win (YouTube,Hulu), but

not the providers of content fighting for a smaller $ pie


Appendix


TV- the Simplest of the Systems


Application to Free TV• Does Hulu represent less value?

– Likely diminishes syndication value on TV– Exclusive? Sort of…– Ad Rates: more akin to syndication?

• Non-simultaneous viewing vs. live• How should it be priced? Syndication is priced on a local level, but

this is “global” syndication• Should this be captured as part of ratings, like DVR?

– Undermine international pricing/sales?

• Can Expand the pie if coupled with windows- “Catch up”is a type of window. Persistent VOD is not


Free TV Consequences

• Where content debuts is the fundamental Question– What is Hulu? Free TV, Internet TV, VOD?

• Currently “catch up” online, but what about shows premiering to a bigger online base

• If premiere on Hulu, then goes to TV, is that TV?• TV programming may come to mean content that

at some point is branded with TV, or which sometime in initial lifecycle is available via TV

http://www.google.com/imgres?imgurl=http://playstationlifestyle.net/wp-content/uploads/2009/06/hulu-logo.jpg&imgrefurl=http://playstationlifestyle.net/2009/07/15/hulu-explains-decision-to-block-ps3-owners/&h=289&w=650&sz=7&tbnid=bY3MAmK52hQYIM:&tbnh=61&tbnw=137&prev=/images%3Fq%3Dhulu%2Blogo&usg=__ctEAK4PtSFv0mQxr5l3D9hzUhdQ=&ei=kTexSrjJC5HUsQPOztzFCw&sa=X&oi=image_result&resnum=2&ct=image

google haas summit 10/09 -- why the long tail business model is flawed

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