Notes on Media Spending, Streaming, and the Short Head Long Tail Model

One way to gauge how big the media business is: look at how people spend their money on entertainment.
Bureau of Labor Statistics data: on average, Americans spend about $0.05$ of each earned dollar on entertainment per year.
This translates to roughly $\$3000$ per year per average American household on entertainment.
Wealth effect: richer people spend a higher percentage of income on entertainment than poorer people.

Spending as a share of income varies by education level:
- Less than a high school diploma: about $0.04$ (4%).
- College degree: about $0.06$ (6%).
Interpretation: with more money for expenses, there is more money available to spend on entertainment.
Poverty context: Roughly 14% of Americans live below the poverty level, but about 98% own a television.

Almost everybody in America has access to entertainment (high TV ownership).
Contrast: in foreign countries with real poverty, access to entertainment can be much more limited.
The 5% share of income on entertainment doesn’t change, but the allocation of that spending does change over time.

The portion of income spent on entertainment stays roughly around the same level (~ $0.05$ ), but what the money is spent on changes.
Decline in physical media spending:
- Spending on CDs and DVDs has dropped significantly.
- People spend less on physical music and more on streaming or video games.
Substitution effects within entertainment: streaming devices and streaming services replace some physical purchases; if there aren’t compelling video games, money may shift to going to the movies.
Net effect: a small percentage reallocation rather than a large change in the overall share of income spent on entertainment.

The video and audio industries hope to make up for the decline in physical sales through streaming.
The American recorded sound industry now derives more than $0.40$ (i.e., 40%) of its revenue from streaming services.
This streaming share rose from $0$ in 02/2008, illustrating rapid growth in streaming as a revenue source.

A site in Northport that used to host a Blockbuster video store; Blockbuster once had about $9{,}000$ stores across the United States.
Blockbuster’s demise illustrates the decline of physical video rental outlets.
Despite the decline of Blockbuster, people are watching more video than ever, indicating a shift to new distribution methods (e.g., streaming).
The rise of the internet has created a new way to think about how media products are sold and distributed.

We term the contemporary distribution model the short head long tail model.
Short head: the few products consumed by millions of people (e.g., the top 10 television shows, the top 5 songs).
Long tail: many more products that collectively reach a sizable audience, though individually consumed by fewer people.
Note: a test tip references this model as a framework for understanding how media products are sold.
The transcript ends mid-explanation, but the intended point is the contrast between a small number of blockbuster items and a long tail of niche items.

Economic implications: streaming becomes a major revenue stream; decline of physical retail outlets.
Market structure: distribution and accessibility shaped by the internet, leading to reallocation of consumer spending within entertainment.
Social implications: broad access to entertainment in the U.S. despite poverty levels; implies different market dynamics in other countries.
Foundational principle: consumer spending patterns serve as a proxy for the size and shape of the media market; substitution effects drive industry evolution.
Real-world context: the shift from brick-and-mortar stores to digital distribution reflects a broader transition in media industries.

Remember to consider the figure describing the short head vs long tail distribution: it highlights that the short head comprises a small number of products with outsized consumption (e.g., top shows, top songs), while the long tail includes many other products with smaller individual audiences.
Also recall the streaming share milestones as evidence of changing consumption patterns: growth from 0% in $2008{-}02$ to over 40% of revenue from streaming in more recent times.