As some of you may be aware, a rather heated debate over the significance and validity of Chris Anderson’s Long Tail theory has erupted over the past couple of months. (For those of you unfamiliar with it, the Long Tail theory dictates that “our culture and economy is shifting away from a focus on a relatively small number of ‘hits’ at the head of the demand curve and toward a huge number of niches in the tail.”)

The debate started with an article by Lee Gomes in the Wall Street Journal, which vigorously questions some of Anderson’s assertions. I’d characterize myself as a believer in the Long Tail (especially as it relates to digital content) but not necessarily a supporter of everything Anderson has to say on the subject. As such, I appreciated Gomes’ article. Some highlights:

This “98 Percent Rule,” as Mr. Anderson names it, suggests the remarkable prospect that no matter how much inventory you put online, someone, somewhere will show up to buy it. He writes, “Everywhere I looked the story was the same. … The 98 Percent Rule turned out to be nearly universal.” Except it’s not. Ecast told me that now, with a much bigger inventory than when Mr. Anderson spoke to them two years ago, the quarterly no-play rate has risen from 2% to 12%. March data for the 1.1 million songs of Rhapsody, another streamer, shows a 22% no-play rate; another 19% got just one or two plays.

By Mr. Anderson’s calculation, 25% of Amazon’s sales are from its tail, as they involve books you can’t find at a traditional retailer. But using another analysis of those numbers — an analysis that Mr. Anderson argues isn’t meaningful — you can show that 2.7% of Amazon’s titles produce a whopping 75% of its revenues. Not quite as impressive.

At Apple’s iTunes, one person who has seen the data — which Apple doesn’t disclose — said sales “closely track Billboard. It’s a hits business.”

Anderson responded via his blog almost immediately, writing:

…Trying to define “head” and “tail” in percentage terms is meaningless in a market with unlimited inventory, because the denominator can grow infinitely large. … Let’s say you have 1,000 items and the top 100 (10%) account for 50% of the sales. Then you add another 99,000 items to the catalog, and the sales of that top 100 fall to just 25% of the total, while it takes another 900 items to make up the next 25%. I would say that demand has shifted down the tail, because those top 100 items have dropped from half the market to just a quarter of it and the rest of the demand is spread over more items.

Despite (or perhaps because of) my enthusiasm for the Long Tail theory, I admit that Anderson’s response felt unsatisfying to me. The Long Tail theory may derive from a simple mathematical function of volume, but the forces driving and shaping that volume bear mention. This is especially true in the case of digital content, which belongs to a market this is rapidly being transformed by online distribution, user-generated content, and the evolution of online communities that rate, support, and synthesize products with or without corporate involvement.

But I’m getting ahead of myself. Gomes soon fired back (and if you’ve read the first two articles, take the time to read this final one as well.) Suffice to say, he doesn’t pull any punches. However, I found the comments on Gomes’ article more interesting than anything else. Two examples:

I am one of the authors of the MIT study (with Erik Brynjolfsson and Jeffrey Hu)… bestsellers are typically sold at a discount and more obscure books at list price. We found similar results in our paper (page 21). If you assume that our numbers are right for the top and bottom 100,000 titles, and further assume that the wholesale price of books is around 47% off list and is constant across titles, then you would get that a little over half of Amazon’s profits (51.9%) are in the long tail.

Hits attract the shoppers/readers, always will. Cross-sell and building a universal brand provides the real method of monetizing the long tail. So I don’t care if Gomes or Anderson are right. Volume isn’t the real economic issue. Profit is.

Both of these quotes highlight the importance of looking beyond mere volume figures when evaluating the importance of the Long Tail. And, as recently noted in Henry’s blog, while the Long Tail theory may not explicitly address broader considerations (such as the value of niche audiences), that does not mean that these considerations are irrelevant.

By the way, I’m by no means the only person to argue that the Long Tail is most interesting and relevant (as an economic and cultural phenomenon) in the digital landscape. See the following articles: 1 & 2.

I do not believe that the media industry — including the video game industry — can afford to ignore the Long Tail or related phenomena. Online distribution, user-generated content, and international competition, especially from low-cost producers in India and China, will inevitably alter the ways in which successful companies generate profit. (If you’re particularly skeptical of the latter, I refer you to the incredible popularity of Japanese manga in the US, as well as the increasing influence of Bollywood in many parts of the world.)

Online communities will raise to prominence and support media content that would previously have gone unnoticed (though the lion’s share of related gains will go to savvy producers who court these communities.) You can see it in their embrace of ill-fated pilots like Global Frequency, and their willingness to commit tremendous effort to personally resurrecting dead game franchises like King’s Quest.

Hits still matter, now and in the distant future. Nobody is disputing that — least of all me. But the bottom line is, media companies neglect the space between the hits at their own peril.

PS. As coincidence has it, Anderson just posted an article about video games and the Long Tail on his blog. He refers to Peter Moore’s recent speech on game “elitism”.