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

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? Copyright Jeff Ulin 2009. All rights reserved.

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 Copyright Jeff Ulin 2009. All rights reserved.

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 Copyright Jeff Ulin 2009. All rights reserved.

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 Copyright Jeff Ulin 2009. All rights reserved.

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) Copyright Jeff Ulin 2009. All rights reserved.

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 Copyright Jeff Ulin 2009. All rights reserved.

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 Copyright Jeff Ulin 2009. All rights reserved.

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? Copyright Jeff Ulin 2009. All rights reserved.

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 Copyright Jeff Ulin 2009. All rights reserved.

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) Copyright Jeff Ulin 2009. All rights reserved.

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) Copyright Jeff Ulin 2009. All rights reserved.

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 Copyright Jeff Ulin 2009. All rights reserved.

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. Copyright Jeff Ulin 2009. All rights reserved.

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 Copyright Jeff Ulin 2009. All rights reserved.

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 Copyright Jeff Ulin 2009. All rights reserved.

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 Copyright Jeff Ulin 2009. All rights reserved.

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 Copyright Jeff Ulin 2009. All rights reserved.

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

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