Superstars and Underdogs: An Examination of the Long Tail Phenomenon in Video Sales

Abstract

The rise of online channels facilitates the distribution of a wide range of products and services. Academics and industry observers agree that online distribution will fundamentally change the number and variety of products that consumers purchase. However, there is sharp disagreement about what type of change will occur. Proponents of the “long tail” idea argue that a sharp increase in the variety of products offered through online channels will fuel a shift in consumption away from hits to a much larger number of lower-selling niche products. While the long-tail view predicts an increase in the heterogeneity of consumption patterns, the well-known superstar effect promises the exact opposite. As consumers have access to their favorite content wherever they are whenever they demand it, consumption patterns will become more, not less uniform, this theory predicts. To shed light on this debate, we study the distribution of revenues across products in the context of the U.S. home video industry for the 2000 to 2005 period. We find superstar and long-tail effects in home video sales, but each effect comes with a twist. There is a long-tail effect in that the number of titles that sell only a few copies every week increases almost twofold during our study period. But at the same time, the number of non-selling titles rises rapidly; it is now four times as high as in 2000. Many underdogs thus in fact appear to be losers. We also find evidence of a superstar effect. Among the best-performing titles, an ever-smaller number of titles accounts for the bulk of sales. The caveat here is that today’s superstars lack the punch of earlier generations: video sales generally decrease over time across all quantiles of the sales distribution, but this effect is most pronounced among best-selling titles. Our findings have important implications for entertainment companies. Exploiting the tail might prove unprofitable if many titles do not sell at all. At the same time, producing superstars is more difficult than ever. The trends we uncover thus point to significant challenges for the entertainment industry.