Google Haas Summit 10/09 -- Why the Long Tail Business Model is Flawed

Why the Long Tail Business Model is Flawed

Jeff Ulin

Googleplex
October 1, 2009

Copyright Jeff Ulin 2009. All rights reserved.

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?


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


Historical Film Windows
Theatrical

6 months
Video

6 months PPV
(residential)

3 months
Pay TV

15 months Rested (“Black”)

3 months
Free TV

Segmented Periods Licensing Rights for 5-10 years Multiple years


Change in Points of Access


The Online Platypus- Wide Tail


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

TIME DIFFERENTIAL
Immediacy to see PRICING
+ Longtail Buy a ticket, rent a
DVD, see free on TV
Mix of
Factors
Drive Value

REPEAT EXCLUSIVITY
CONSUMPTION ‘only see it here’
Theater, Video, TV 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 Four Drivers of Distribution Value

– If you see pressure on one of TIME
Immediacy to see
DIFFERENTIAL
PRICING

the legs/value pillars, then
+ Longtail Buy a ticket, rent a
DVD, see free on TV
Mix of
likely a window tussle between Factors
Drive Value
old and new
REPEAT EXCLUSIVITY

• Online tends toward free and
CONSUMPTION ‘only see it here’
Theater, Video, TV competitive effect

non-exclusive

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


That’s what is happening


Same Market (sort of), New Name

Convergence Lexicon
Streaming Download VOD New Technology

TV Sell Thru Rental Changing traditional market
Video Video

Electronic On New Name Market
Internet TV Sell Thru Demand


User options can migrate
• Netflix: subscribe to rent

• Amazon: a la carte purchase

• Hulu + YouTube: free ad supported (TV)


But Value Undermined if Persistent VOD–
Windows Still Optimize
Supports:
Netflix Subscribe to Rent (Subscription) •Differential Pricing
Amazon Purchase to Own (VOD) •Repeat Consumption
Hulu Ad Supported (like Free TV) •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 Bite 1 Bite 2 Bite 3

managed VOD access Exclusivity & Competitive Effect make value disproportionately large

will preserve
Bigger

– Under a windowed Bite 1

system, the 2nd and 3rd Nibbles

bites can be larger
Long Tail


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.


Buyers and Advertisers ≠ Infinite

$

Infinite Shelf Space & Infinite Content

Number of web pages outstrips number of viable advertisers

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

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


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


Google Haas Summit 10/09 -- Why the Long Tail Business Model is Flawed

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Google Haas Summit 10/09 -- Why the Long Tail Business Model is Flawed