Netflix's secret weapon: the long tail of movies

David Leonhardt at the New York Times poses an intriguing brain teaser about why NetFlix's DVD rental business thrives:

Out of the 60,000 titles in Netflix's inventory, I ask, how many do you think are rented at least once on a typical day?

The most common answers have been around 1,000, which sounds reasonable enough. Americans tend to flock to the same small group of movies, just as they flock to the same candy bars and cars, right?

Well, the actual answer is 35,000 to 40,000. That's right: every day, almost two of every three movies ever put onto DVD are rented by a Netflix customer. "Americans' tastes are really broad," says Reed Hastings, Netflix's chief executive. So, while the studios spend their energy promoting bland blockbusters aimed at everyone, Netflix has been catering to what people really want — and helping to keep Hollywood profitable in the process.

NetFlix is catering to the Long Tail of consumer interests, demonstrating that there is just as much business available in a large number of less popular titles as there is in the small number of blockbusters that the movie studios are promoting. And while one can argue that so much choice might create a tyranny of too much choice for consumers, NetFlix sidesteps this issue by giving users Internet tools designed to reduce the number of choices to a manageable number: recommendations from friends and other viewers, automated collaborative filters, and user-created ratings.

Leonhardt points out that while new technologies like video on demand and iTunes downloads will compete with NetFlix, they pose no real danger because:

• VOD and downloading services offer only about 1,500 titles. So long as download services concentrate their efforts on the hits, the long tail of consumer interest in movies says that NetFlix can make as much or more money renting a large library.


• Hollywood agreements will continue to make downloads less desirable than DVDs. With most wide distribution rights already sold to channels like HBO and others, VOD and iTunes aren't getting first-run movies any time soon. And with digital downloads of movies today still taking a day or more, consumers will want DVDs delivered by mail for years to come.

NetFlix ability to thrive on mail-order DVDs isn't the end of this long tail argument though. It also means that the battle for next generation DVDs still matters. Many have claimed that downloaded movies would mean that no one would care about whether HD-DVD or Blu-ray wins the battle between Toshiba and Sony to set the standard for next generation DVDs. Given the unsolved problems of both bandwidth and title depth for downloads, consumers will still ask for silver disks for home movie night. And despite various claims and delays, our call remains that it's Sony's Blu-ray that will carry the day..

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