Netflix: Shifting Demand Down the Long Tail

A team at Wharton did some Long Tail analysis on the Netflix (NFLX) ratings data the company released for its Netflix Prize. Although I don’t agree with many of the conclusions in their paper (like some other academics, they got confused over definitions of “head” and “tail” and fell into the common trap of doing percentage analysis in an absolute numbers world), the data was interesting.

They kindly shared it with me before publication and incorporated some of my analysis in their paper. But for some reason they didn’t use the best part, which was this chart (click to enlarge):

The vertical axis is percentage of total demand (with ratings used as a rough estimate of rentals), and the horizontal axis is the popularity rank of the DVD titles. Between 2000 and 2005, the Netflix selection grew from 4,500 DVDs to 18,000, and the effect on the demand of this increase in variety is shown above.

Comments

[Dialectical...:]

This is something I think a lot of folks do not understand about Netflix (and many other internet based models of things). There is a viable market in unpopular or odd offferings as long as delivery of these products can be done affordabley. In Netflix's case now (and even more so with streaming) they CAN efficiently offer a title that may have only a few thousand fans. And fringe markets are fiercly loyal (since they feel lucky to find products that cater to their tastes). So there is certainly money to be made in the tail.

My hope is that as small market entertainment content expands on the internet (web series, semi-professional music, smart phone apps, etc.) more companies will monetize bringing rare finds to rare fans and lots of off beat stuff will find an appreciative audience (and lots of creative folks will be able to eek out a living doing something they love).

I think Netflix understands the real possibilities of their business model and I expect they will be doing very well over the next several years.

Sep 25 09:38 AM

[Dialectical...:]

I just read the link and I am blown away with how badly they missed on their analysis. Taking a 10% sample of ratings and then arguing that many of the niche offerings had no ratings at all (implying they had never been viewed) points to a real misunderstanding about the nature of niche markets. The point isn't supposed to be that a few dozen people watch the movie, love it so much that they tell their friends and so on until it becomes a top 100 offering. The point is that someone somewhere got to see a rare find and this is something they would not have been able to do 20 years ago (and the important point from the business perspective is that this customer will happily PAY for this entertainment opportunity). Chief to the academics' findings seems to be the notion that niche offerings are not very popular (...?) What part of niche did they not understand?

Sep 25 10:00 AM

[dsds:]

Tuesday night, October 6th Netflix site is outage, The site and its Instant Watch features are inaccessible as of 9.30 ET/6.30 PT.

www.monkeydollars.net/...

Oct 07 12:11 AM