Changing the channel: Digitization and the rise of “middle tail” strategies

Research Summary: Prior research has studied whether digitization shifts demand away from mass-appeal blockbusters toward a “long tail” of existing products. We extend this work by studying whether digitization influences the products created. Using unique data on movies, we examine whether the reduced costs of production and new digital distribution channels spur producers to create products aimed at smaller audiences. We employ a flexible, transparent, and largely graphical empirical approach to document changes unfolding with digitization. We find growth in both intended blockbuster and long tail products, but also, the rise of a “middle tail,” movies distributed via digital channels, with budgets suggesting commercial intent but well below the averages for theatrical distribution. The new middle tail is largely due to newcomers rather than major incumbents. Managerial Summary: Digitization has reduced the costs to create movies, while also enabling new distribution channels that avoid the high costs of theatrical distribution. With lower costs, movies no longer need to be “blockbusters” at the box office to be financially successful. In this article, we study whether digitization has spurred an increase in lower-budget movies that are not aimed for release in theaters. We find that digitization has unleashed a large number of very low budget movies that attract little commercial attention (i.e., the “long tail”). However, we also find an increase in a new category of movies with budgets between $100,000 and $10 million, aimed at smaller audiences via new digital distribution channels. We show growth in this “middle tail” following digitization.