DOES THE INTERNET POSE A THREAT to established entertainment companies? Michael D. Smith and Rahul Telang lead a class at Carnegie Mellon University in which a student recently put that question to a visiting executive. He pooh-poohed the idea: “The original players in this industry have been around for the last 100 years, and there’s a reason for that.” As co-heads of CMU’s Initiative for Digital Entertainment Analytics, Messrs. Smith and Telang aim to counter this line of thought, and in Streaming, Sharing, Stealing they do just that, explaining gently yet firmly exactly how the internet threatens estab­lished ways and what can and cannot be done about it. Their book should be required for anyone who wishes to believe that nothing much has changed.

STREAMING, SHARING, STEALING: Big Data and the Future of Entertainment
by Michael D. Smith and Rahul Telang

That such thinking still exists, at a time when Apple and Alphabet (that is, Google) are by far the world’s most valuable corpora­tions, is testament to the power of self-delusion. Whether in music or movies or television or books, digital tech­nology has given artists the tools to strike out on their own, enabled audiences to avoid paying for anything they don’t want to pay for and denied media companies the ability to control audience behavior. No longer can executives in New York or Los Angeles force music fans to buy an entire album instead of a single song; or movie buffs to line up at the box office for some­thing they’d rather watch at home free; or tele­vision audiences to rush home and endure a barrage of ads in order to see their favorite shows. Remember NBC’s “Must See TV”? Not if you’re under 30.

The book opens with an emblem­atic story about House of Cards, the Net­flix political drama that up­ended tele­vision, not just be­cause it didn’t come from a con­ven­tional net­work or be­cause the whole first sea­son was re­leased at once but because Net­flix dis­pensed with the pilot pro­cess and put up $100 million to produce 26 epi­sodes sight un­seen. What looked from the out­side like a stunt was a con­sidered invest­ment. Be­cause Net­flix has finely grained informa­tion about its sub­scribers—their likes, dis­likes, viewing histories—the com­pany can make determina­tions that tele­vision net­works, which see audi­ences through a Niel­sen lens that reduces viewers to demographic blobs, cannot.

Data gets you not just granularity but clarity. Do low-cost e-books cannibalize the sales of expensive hard­covers? No, it turns out that people who want one format were never likely to consume the other. What about piracy? Evidence suggests that it does indeed hurt music and video producers, though hardly as much as they claim. Efforts to fight piracy have been shown to cut down on illicit downloads and increase sales; so does a strategy of making more titles avail­able legally. What doesn’t work is con­ducting business as usual.

Consider what happened when NBC decided to pull its shows from iTunes in a 2007 contract dispute: Not only did viewers fail to buy DVD box sets or migrate to NBC.com, as the network expected; many of them decamped for BitTorrent and started downloading pirated shows en masse—and they didn’t stop when NBC finally crawled back to iTunes nearly a year later. NBC thought it was playing hardball with Apple; in fact, it provoked its audience to learn how to pirate.

At one chain, the top 100 movie titles accounted for 85% of the DVDs rented in-store. But online, the top titles make up only 35% of rentals.

Then there’s the question of blockbusters vs. the long tail. In her book Blockbusters (2013), Anita Elberse, a Harvard Business School professor, contended that digital markets, far from favoring the “long tail” of products that were mostly unavailable in physical stores or theaters, actually concentrate sales at the top even further. Messrs. Smith and Telang quietly but effectively demolish this argument, noting numerous instances in which the opposite happened. In the case of one large chain, the top 100 titles accounted for 85% of the DVDs rented in-store—but when stores closed and customers were shifted to the Web, the most popular titles made up only 35% of the DVDs rented online.

The authors also note that, by making it easy for writers, musicians, and directors to work independently, digital technology has vastly increased the number of works available. Between 2000 and 2010, an explosion in self-publishing raised the number of new books issued per year to 3.1 million from 122,000. Predictably, the overwhelming majority of these titles went nowhere. But one that was self-published in 2011—E.L. James’s 50 Shades of Grey—became the ultimate blockbuster, selling more than 100 million copies and spawning multiple sequels and a multi-billion-dollar movie franchise. And it’s not alone.

The authors’ point is not that the long tail is where the money is, though that can be the case. It’s that “long-tail business models,” being inherently digital, can succeed where others do not. Mass-media businesses have always depended on the economics of scarcity: experts picking a handful of likely winners to be produced with a professional sheen, released through a tightly controlled series of channels and supported by blowout ad campaigns. This, the authors make clear, is a strategy for the previous century.

Amazon, Apple and Netflix have built powerful online distribution platforms that offer a vast array of choices, accommodate self-produced work, command overwhelming market share and deliver specific feedback about everything users do. Conventional media companies don’t have access to most of this data, and they won’t be able to compete in the environment it is creating—at least, not without radical change, both in organizational structure and in mindset. In their final chapters, Messrs. Smith and Telang lay out a course of action that is far-reaching yet considered. Most media executives will find it painful even to contemplate. But they have no choice: Scarcity is being eliminated as we speak. For those in the business of keeping us entertained, Streaming, Sharing, Stealing is a handbook for living without it. ◼︎