Forget the blockbusters and megahits. The future is all about the niche.
Whether a company is selling music, news, movies or fashion apparel, consumer buying habits have changed because of the Internet, said Chris Anderson, editor in chief of Wired magazine and author of “The Long Tail: Why the Future of Business Is Selling Less of More.”
“We’re leaving the era of the blockbuster behind,” Anderson said. “The 20th century was the hit-driven century, dominated by top-40 radio and prime-time television and Hollywood blockbusters. That era is coming to an end.”
On Anderson’s Web site, Thelongtail.com, which he describes as a “public diary” on themes within his book, Anderson states, “Traditional retail economics dictate that stores only stock the likely hits because shelf space is expensive. But online retailers (from Amazon to iTunes) can stock virtually everything, and the number of available niche products outnumber the hits by several orders of magnitude. Those millions of niches are the Long Tail, which had been largely neglected until recently in favor of the Short Head of hits….The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of ‘hits’ (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail.”
During his keynote address, Anderson said this fundamental change in consumerism peaked on March 21, 2000, when NSYNC released a second album, “No Strings Attached.” The editor and author said it broke sales records that will likely not be broken again.
Anderson noted that sales in the record industry have been flat, and CD sales are down, but he said the number of digital music downloads are up. And the number of hit albums has fallen 50 percent.
“What’s interesting is that during this period, there’s been more music produced than ever before,” he said. “Today, there are 65,000 albums released each year. And there is more music consumed than ever before thanks to the iPod and iTunes. But there are fewer and fewer hit albums. The audience is fragmenting and splintering to niche music.”
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In television, the top three networks once garnered the greatest market share with just a few other broadcasters; now there are more channels. “So there is more television being produced and more people watching television,” he said. “But it is less concentrated around hits.”
This trend is also seen in daily newspapers that were once the primary source of news. Now readership is in a steep decline driven by changes in readership as the Internet grows.
Hollywood is also feeling the effects of the long tail. There are blockbuster hits, but the total number of megahits is falling. Year-over-year revenue is down more than 10 percent in the film industry. “Once again, there are more movies being made than ever before, and there are more people watching movies than ever before,” Anderson said. “They are just not doing it through the multiplex.”
Movie watchers are using Netflix or buying DVDs with more frequency to watch films at home with a Surround Sound theater system, Anderson said. “We are de-synchronizing as a culture,” he said. “We are no longer a monolithic, mass market culture.”
The long tail can be seen in the sales of products, the popularity of Web sites or the viewership of other media — “It could be seen in almost anything,” he said. But the reason this has not been observed until recently is because the distribution channel for products, films and media was tightly constrained. “Shelf space was expensive, so we had to be discriminating about what we put on the shelf,” Anderson said, adding that the market had to be choosy in what was released.
This resulted in a drive toward producing and releasing products or media that satisfied the lowest common denominator. “You had to go for formulas,” he said. “You had to find the intersections of taste rather than [target] individual tastes. That’s why our shelves have been filled with blockbuster products.”
Now the distribution model has changed, “and we have infinite shelf space,” he said, noting the emergence of Amazon, eBay, Netflix and iTunes. “So for the first time we are able to see the whole curve,” Anderson said.
The emergence of the niche distribution model (via the Internet) has resulted in the realization that the demand for products and media is “greater than we ever anticipated.”
In fashion apparel, the Internet is also playing out in a long tail. The niche here includes vintage clothing. “And so eBay has emerged as the preferred retailer for vintage fashion,” Anderson said.
“Another media trend is user-generated media, such as YouTube,” he added. “And the same applies to fashion. There’s a trend away from brands and logos…and toward an anti-logo manifestation with Web sites where users design their own T-shirts.”
Also, there is the growth of the online fashion community where users engage in fashion criticism. Web sites tapping this trend include Lipstick.com and Dailycandy.com.
So what does all this mean for bricks-and-mortar businesses? Opportunity, Anderson said. For example, retailers can offer an aisle of popular product where consumers feel and touch products but may also order the same or similar products in other options. “It’s an integration of the offline and online,” he said.
Anderson suggested that retailers find a way to drive people to their inventory instead of the other way around. Perhaps a bricks-and-mortar store can also share data on what’s selling the best in their stores.
Another possible long-tail merchandise strategy may be rolling out “showcase” stores where consumers have a tactile experience with products, but there is no inventory, and goods are drop shipped. “It’s a bridge between the offline and the online,” Anderson said.