Netflix and The Long Tail (NFLX)

Readers of the Internet Stock Blog will recognize The Long Tail as an important investment theme; so important, in fact, that this site has a category devoted to Long Tail analysis of 'net stocks.

Now, for the first time, a sell-side research analyst has devoted an entire section of an initiation of coverage report to The Long Tail. (Morgan Stanley analyst Mary Meeker touched on some of the issues in an October 2004 report about Yahoo and content, but I believe she misunderstood the competitive impact of The Long Tail.) This is the third extact from Mark Mahaney's intiation of coverage report on Netflix I'm publishing on the Internet Stock Blog today (all with Mark's permission), because of its impressive quantitative and qualitative rigor. (The other two are here and here.) As with the others, this is worth reading:

THE LONG TAIL

We believe a key driver behind NFLX’s success rests on its ability to create demand for lesser-known and older movies (i.e. moving subscribers “down the tail