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Richard Spilman

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Blockbusters and Publishing: The Pareto Principle vs. Netflix

Posted: 01/05/09 01:15 PM ET

In an article in today's Wall Street Journal by Anita Elberse, Blockbuster or Bust - Why struggling publishers will keep placing outrageous bids on new books, Ms. Elberse describes how publishers continue to fall back on their old business model of paying large advances for blockbusters, even in these difficult economic times.

It brought to mind the cliché about generals that are always preparing to fight the last war. That is exactly what the publishing industry seems to be doing now.

Betting on a small number of books to have huge sales makes perfect sense if you have limited channels of distribution, high overhead and production costs. That has been the rule in publishing for decades but is obviously changing, even if the publishing giants haven't figured it out yet.

I suspect that in the next decade or so we will begin to see the Pareto principle replaced by what I call the Netflix principle. The Pareto principle, as applied to publishing, suggests that 20% of the titles will generate 80% of the revenue. Therefore, go after the blockbusters. Pay large advances in hopes of hitting that one big best-seller. End of story.

The Netflix principle suggests a different approach. It suggests that consumers really like variety. Presented with choices, they will not necessarily make the same stale selection, over and over again. Unlike a typical DVD rental shop which can display perhaps a few hundred titles, Netflix offers 60,000 different DVDs for rent. From the New York Times - What Netflix Could Teach Hollywood

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.

I suspect that a similar thing will begin to happen in publishing. The walls, both literally and figuratively, are coming down. I find I buy far more books from Amazon than anyone else simply because they have the books that I will never find in bookstores full of best-sellers from the book factories of James Patterson, Clive Cussler and the rest.

Rather than continuing to be narrow and blockbuster focused, publishing in the not too distant future will have to broaden its scope. The average Barnes and Noble "superstore" stocks over 100,000 titles. Right now, Amazon offers 215,000 books on their Kindle, all available at literally a touch of a button. Once the ebook format wars end and the publishers stop being stupid in their pricing of ebooks, the potential is huge.

For those who prefer ink and paper the Espresso Book machine, as well as other print on demand technologies and services should make more titles available to everyone at lower costs. OnDemandBooks, the manufacturer of Espresso claims, "What Gutenberg's press did for Europe in the 15th century, digitization and the Espresso Book Machine will do for the world tomorrow." Whether or not one believes the hype, technology should continue to make access to books easier and cheaper, which ultimately has to be good for both readers and writers.

We are not there yet. Today's blockbuster strategies by the major publishers would make more sense if the calendar said 1970 rather than 2009. Perhaps it is time that they caught up with the rest of us.