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Netflix and the Potential End of the Long Tail Practices

In the article below, the author discusses how a new business plan for Netflix may have ruined their long tail business scheme that had made them so successful.  The new decision by Netflix was to make customers buy online access and physical DVD rentals separately with no discount for buying into both.  Intially, once the online features were added, the top 500 movies drop from 70% of their total sales to 50%.  By eliminating the great titles only available on the physical DVDs or the wide variety of inventory available online, they could create damaging effects on their business and on their popularity with the customers.  The author goes on to suggest that the best decision would be to allow streaming customers to take out any DVDs that are not available online to reestablish the old model in some sense.

The classic effects of long-tail are fully analyzed in this article in relation to how it could effect real business.  The idea that the advantage Netflix has over other company’s is their ability to provide those less popular movies easily without having to keep them in stock and thus provide more options to the customer is important for understanding how this economic analysis can really connect in the real world.  A vast amount of their inventory consists of smaller less known movies that others cannot keep in stock due to physical restraints.  By limiting the customer to either only the more popular movies or only the long tail, there is potential that customers will be upset and leave.  This real world analysis of the long-tail in business is fascinating and it will be interesting to see over the next 5 years how Netflix is dealing and will be dealing with this.

Source:  http://blogs.reuters.com/felix-salmon/2011/07/12/did-netflix-just-kill-its-long-tail-model/

-Mel (mek229)

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