Tobold's Blog
Friday, June 09, 2017
The long tail in video streaming

Recently a friend of mine started a D&D campaign playing in ancient Egypt at the time of the pharaohs. I know just a little bit about that period of time, so in the interest of making the game a bit more authentic, I wanted to know more. Once upon a time I would have turned to a library, but between me having less time and the ongoing changes of how people get information from the internet these days, I looked for documentary films on ancient Egypt instead. And I made a surprising discovery: Netflix was a real let-down, not providing anything useful, not even an old version of "The Mummy". Amazon Prime on the other hand had several different documentaries and series on ancient Egypt.

In a way that isn't surprising. The core business model of Amazon is "the long tail". It started with books, where Amazon's distribution system simply can hold many more different books than your local bookshop. So while the local bookshop only has the most likely sellers on their shelves, Amazon has many of the books that the bookshop can't stock, "the long tail" of the demand curve. Yes, each of those books is in less demand than the bestsellers. But once people get used to buying at Amazon because the choice is so much bigger, they end up buying the bestsellers there as well, and the local bookshop is going out of business. It isn't really that surprising that for video streaming the same principles apply. Amazon Prime already has an advantage over Netflix because you get advantages like free delivery besides the video streaming. If in addition Amazon has a much bigger library, they gain yet another competitive advantage.

I use newsreaders in which you put keywords of stuff that interests you, and I get a stream of news about these subjects. Having put "Netflix" as one of my keywords, I got used to seeing articles of the kind "What's Leaving Netflix in June 2017". What I don't understand is the "Why?". I would think that the main cost for Netflix is actually streaming videos, while in comparison storing those videos costs relatively little. Is it the commercial agreement with the license holder which makes it too expensive for Netflix to store a "long tail" of rarely watched films? If that is the case, why wouldn't they make a deal in which the license holder gets paid in function of the number of times a film gets watched. Yes, that would be a small income only for both Netflix and the licensor, but a small income is better than no income at all. And a large enough pile of small incomes adds up to real money. Yes, I do watch "hot stuff" like House of Cards. But sometimes I want to watch something older and/or less popular. And "you need to watch this now, then it's gone" is annoying, because it feels like a chore. Netflix would do better with a long tail.

Regarding Netflix: I think there must be more to it than just time limited licenses. Netflix doesn't even keep its own productions available forever, I guess I have only seen about 80 of the 90 "Chelsea" season 1 episodes and now they are gone. So there might be some kind of "let's try to channel viewer interest" going on. Also scarcity makes products seem more valuable. Btw, Sky too removes shows after a while.

Book stores: I still buy in my local book store. They might not have every book on shelf, but they can get it there the next day. Sure I'll have to visit the store twice but I drive around a bit on my bike daily anyway to not become fat. Amazon also can't offer books cheaper due to Germanys fixed book price agreement.
Licenses are one of the reasons but I think there is more to it than that. The total number of videos on Netflix has shrunk substantially over the last few years as Netflix has concentrated their money on new and exclusive releases and culled huge swathes of older "long tail" material. Netflix seems to be deliberately positioning itself as a TV channel like HBO rather than as a library like Amazon. Netflix doesn't seem to have any interest in obtaining perpetual licenses for older material. To be fair Netflix's new and original content is widely acknowledged to be top notch although a lot of it is aimed a younger demographic than myself (A series glorifying teen suicide...Really?)
I also don't think Netflix has the kind of capital that Amazon does. Amazon is on their tail in terms of investment. This year Amazon is expected to invest US$5B on new streaming video content, Netflix with US$6.5B

So I think you are right that Netflix is moving on to new content because its probably a bigger winner than the long tail that Amazon has the captial to dominate (like its dominating so many other things)
Part of the problem with Amazon's approach is simply that what is on offer is so huge that it becomes near impossible to search through it all to find what you want.

It wasn't until recently that they even allowed you to sort by release date. Click on the "New Arrivals" and see what you get --- 1 or 2 new movies and literally 100's of 50-60-70's B movies, semi-porn, and conspiracy documentaries.

Netflix is gambling that you'll come to them because they won't waste your time with anything low quality. Amazon is simply warehousing the universe and you are on your own to find something useful.
My take is that Amazon's advantage is they don't give a crap about "profit." Their business model has always been about get all the market share and boost the stock prices. Higher stocks... more "worth"... more "worth", more of other people's money to drive forward with.

In the current world? Where finance bubbles are king? The strategy seems to work. In a rational world, though... they would have gone under long ago.
Smokeman, Amazon is pressuring book publishers into selling books way way cheaper than book stores can get them by sheer volume of sales. Amazon makes a shitload of profit on books and the German book price agreement is the best thing that could ever happen for them. (note: I don't want to make anyone feel bad about buying books at Amazon because publishers could just stop whining and build a joint online platform too).

Other products that are only shipped by Amazon but sold by other companies they get predetermined a cut so every sale is profit too.

I don't think there are many products Amazon sells without profit.
Amazon makes a profit on each individual item, but then reinvests the money in itself and doesn't keep much profit on the books for the end of the year to give out as dividend or such.
I think it is simply a different business model. Netflix wants to keep its viewers engaged in the current stuff. It doesn't want to be a library of 'classics'.
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