Uncategorized

Hit Product Dominates Download Sales

Wired Editor Chris Anderson took a look on his blog at NARM figures showing that much like CD’s a small percentage of available tracks account for a large percentage of sales:

  • 0.2% of the catalog (2,600 tracks) represents 50% of the sales
  • 1.5% of catalog (22K tracks) is 77% of sales
  • And the tail: 88.2% of the catalog is just 7% of the sales

Long_tail_coverAnderson coined the term "The Long Tail"  (also the title of his forthcoming book)for the net created sales phenomenon where profits will come from selling smaller numbner of more product of a longer period of time.  The figures above would seem to contradict that theory, but Anderson says the exact oppsite is true.

"…the effect of a massive increase in inventory is always to make sales appear more concentrated in percentage terms. So, for example, if you have 1,000 titles and the top 10% (100) account for half the sales, and then you expand that to 10,000 titles, the exact same sales of the top 100 now mean that it’s just the top 1% that accounts for the same half of sales. It’s actually no more concentrated, but the bigger denominator makes it appear that it is.

More anaylsis after the jump.

The right way to compare these markets is the way people experience them: not in percent of total inventory but in absolute number of titles. Here are two sets of comparisons for illustration’s sake:

Title rank Percent of total sales

DVDs Blockbuster Netflix

1-10 31.2% 13.1%

11-100 36.4% 24.8%

100-1000 19.8% 25.9%

1000 on 12.6% 36.2 %

Albums CDs (Soundscan) Rhapsody

1-10 59.1%   44.6%

11-100 5.4 %   2.0 %

100-1000 13.2%    6.1%

1000 on 22.3%    47.3%

Let’s do the concentration analysis two ways, first expressing inventory in percentage terms and then in absolute figures, so the difference will become clear.

* Blockbuster (total inventory: 3,000 DVDs): 80% of sales come from top 10% of titles

http://www.netflix.com/MediaCenter?hnjr=8

> ): 80% of rentals come from top 5% of titles

Seen that way, it looks like Netflix’s business is twice as concentrated in the hits as Blockbuster’s, weirdly enough. But that’s actually just an artifact of the fact that Netflix stocks twenty times as many titles as Blockbuster. For a more illuminating comparison, let’s do the inventory analysis again in absolute numbers.

* Blockbuster: The top 100 titles account for 69.4% of sales.

* Netflix: The top 100 titles account for 38.8% of sales.

Which is just what we would expect. Netflix’s demand curve really is much less hit-centric than Blockbuster’s. The top 100, which are the majority of sales offline, are the minority of sales online. Which is exactly what Long Tail economics would predict. Phew.

* Netflix: (total inventory: 60,000 DVDs <

Share on: