Purged: How a failed economic theory still rules the digital music marketplace

Unless you spent a lot of time listening to early ’00s techno-utopian babble, the Theory of the Long Tail probably means nothing to you. Yet if you live in the US or Europe and you run a digital music label, you’re living it – or the fallout from it – almost every day.

In 2004, Wired magazine editor Chris Anderson proposed The Long Tail, an economic theory blown up by futurist steroids. It theorized that with the introduction of the internet, blockbusters would matter less and everyone would sell “less of more.” The Long Tail prophesied “How Endless Choice Is Creating Unlimited Demand,” according to the subtitle of Anderson’s later book, which if true would turn the field of economics on its head.

For a practical example of what this all means, compare a brick-and-mortar record store like the old Tower Records vs. an online retailer like Traxsource. Your local Tower Records had to limit its inventory to take into account a finite shelf space. Their stock might have consisted of a couple hundred records. And each record didn’t get equal shelf space: your hippie boomer parents were going to buy more copies of Beatles records than all your Belgian techno records, so the store would stock and give more attention to the former. This “artificial” scarcity of physical products taking up physical space and depriving it from other products had bent consumer behavior out of shape for basically all of history.

Axioms such as “getting on all platforms” and “going where the people are listening” are music industry fortune cookies, urging everyone to fall into place in an economic system that works for almost no one.

With the internet and the creation of intangible digital products, this was supposed to change. Traxsource and other digital retailers are limited not by shelf space but by the size of their server hard drive array. And buying more server space is cheaper than building a new store.

According to Anderson, sales would in the future would represent a classic “Pareto” or “power law” demand curve: 20% of sales would be by “star” artists selling millions of copies each in our record store analogy, while 80% would consist of many thousands, tens of thousands or even millions of artists selling relatively few copies of each of their albums as the store’s near-infinite inventory meant people could metaphorically “wander about” and choose from millions of options.

This was the “Long Tail” in a nutshell, represented on a chart stretching to the right into infinity: in the future, music retailers would sell “less” copies from “more” artists. Many more.

And then this elegant economic theory ran headlong into the tsunami of shitmusic.

The Marvel-ization of the Music Industry

Nothing turned out the way Anderson predicted.

As early as 2008 – five years after iTunes was founded and we began to get actual data of how this whole thing was working – keen observers began chopping the Long Tail down to size. Economist Will Page working with Andrew Bud and Gary Eggleton was able to obtain somewhat anonymized transactions from a “large digital music provider” rumored to be either Rhapsody or iTunes itself. They had so much data, in fact, that an ordinary Excel spreadsheet choked on it.

It was a gigantic sample of… nothing.

80% of the songs had no transaction data: they had sold no copies at all.

There wasn’t any volume in the “Long Tail” and nothing had really changed – except for the worst. The actual sales data showed an even greater concentration of sales in the “Fat Head.” Page later spoke about their findings:

“We found that only 20% of tracks in our sample were ‘active,’ that is to say they sold at least one copy, and hence, 80% of the tracks sold nothing at all. Moreover, approximately 80% of sales revenue came from around 3% of the active tracks. Factor in the dormant tail and you’re looking at an ’80/0.38% rule’ for all the inventory on the digital shelf.

“Finally, only 40 tracks sold more than 100,000 copies, accounting for 8% of the business. Think about that – back in the physical world, forty tracks could be just 4 albums, or the top slice of the best-selling ‘Now That’s What I Call Music, Volume 70’ which bundles up 43 ‘hits’ into one perennially popular customer offering!”

When the new owners of Rolling Stone recently announced they would challenge Billboard’s dominance of the pop charts, what was left unsaid is how pointless a “top 100” of ANYTHING has become. As far as big-time music industry relevance, a “top 100” could probably be cut down to a “top 8” or “top 11.” Sales are so heavily concentrated at the top that you’d expect artists to start their own campaign for industry income equality. (Which, in a way, we are.)

Paradoxically, though economists are now skeptical of the Theory of the Long Tail, people – including artists and management – still base their careers on it. It’s one of the guiding, unquestioned principles of doing business in the digital world. Axioms such as “getting on all platforms” and “going where the people are listening” are music industry fortune cookies, urging everyone to fall into place in an economic system that works for almost no one. Apple and Spotify boast of their huge inventories of tracks – millions upon millions that no human could listen to – but the lion’s share of listens and revenue still go to the head.

Far from being democratized, media has become Marvel-ized, as in Marvel movies: dependent on a tiny number of massive blockbusters rather than an abundance of niche alternatives.

Moreover, that “infinite shelf” is being constantly – and invisibly – reorganized by algorithms. That nearly “infinite” music may still be on a shelf somewhere, but without an equally “infinite” amount of time, there’s no way to explore it. Online retailers are investing more and more heavily in algorithms that put what they think you want in front of you – and thus what you don’t know you want further and further down the shelf. The order of the shelf is constantly changing to put more and more proven products – products with a history, which have been browsed and sold to people who share something in common with your purchase or listening history – in front of you.

The Long Tail Theory’s father, Chris Anderson, even conceded that the Long Tail was rather short and really pretty puny, at least the part that had any economic activity at all. Despite the hit to his “tech visionary” cred, by 2008 Anderson would admit that “it’s hard to make money in the Tail. The revenues are disproportionately in the Head. Perhaps that will never change.”

Economics Didn’t Fail. You Did.

And now, ten years later, we’re seeing digital retailers confront the fallout of the Long Tail which was still en vogue when most of them launched. The “unlimited demand” never materialized, and it turns out there’s a cost for “endless choice” – and that cost means the Long Tail’s “infinite” shelf space isn’t so infinite after all.

In August, Beatport announced they would begin the process of purging tracks from their inventory which had never sold even a single copy. Traxsource, it’s been said, does the same thing every two years. At the end of 2019, Beatport will purge their “infinite” shelf of every record released prior to 2019 that hasn’t sold a single copy in its history. It’s strongly implied this purge will become an annual ritual rather than a one-off exorcism of shitmusic.

Why would Beatport do this?

Moreover, if you didn’t get rich, the problem wasn’t the system: it was you. An economic theory written by a magazine editor didn’t fail. You did.

One reason is forward-looking. The music industry and especially the electronic music industry is about to be deluged by a tsunami of tracks guided by and in the end primarily composed by artificial intelligence. AI-created music will be the ultimate Long Tail case study, because the economics of AI music require selling “less of more” – one copy each of thousands upon thousands of tracks placed in stores’ inventory thanks to low-cost digital distribution from the likes of DistroKid. From 2020 forward, we should definitely stop caring when streaming or storefronts boast about the millions of tracks they have in their inventory, as it rises exponentially with to AI-created shitmusic. This new never- or rarely-purchased form of computer-created trash will take up an increasing amount of that “infinite” shelf space – far more than sales will pay for.

But that’s just going to fatten up a long, dead tail. That 80% or so of never-sold inventory Will Page wrote about didn’t go away. Year after year it’s piled up, like a sediment of shitmusic falling to the bottom of Beatport’s database. Nobody bought it when it was new and it hasn’t gotten better with age, and Beatport is discovering that even “cheap” server costs begin to add up when you’re paying for storage for a massive catalog of unsold music. Costing just a few cents a year per track – imagine how big that catalog of shitmusic must be for it to actually have an impact on Beatport’s bottom line!

When I wrote about Beatport’s purge, I was kind of surprised by the lively reaction. I thought it was a rote bit of corporate housekeeping – Beatport sharing their mundane “to do” list with the world. Yet it became one of the most shared stories on our website for a week and it keeps popping back up.

I think people are surprised. It’s like finding out gravity is a sham. Many of the participants in the music industry and particularly in the electronic music industry have unknowingly built their careers or at least their aspirations for one on a dead, discredited theory written by a techno-utopian magazine editor with no education in economics. There wasn’t supposed to be this mass of unsold tracks. They were supposed to sell a few copies of each. The shelf was infinite. Less of more.

The unspoken but universally held laws that guided the digital music industry for the last two decades weren’t true. They were never true.

Everyone told you that releasing 52 tracks a year was better than 14, that more tracks meant a higher royalty statement, that you have to “get on all platforms” for some kind of ledger-bound magic to happen and make you rich. Moreover, if you didn’t get rich, the problem wasn’t the system: it was you. It wasn’t the inevitable result of an economic theory based on bullshit. It didn’t fail: you did.

And it turns out it was nothing but a great big fraud.