Netflix and the Power Law

http://www.igvita.com/2007/01/24/choice-and-the-long-tail-at-netflix/

This article shows an interesting analysis of Netflix movie rentals using the power law. Many have argued that over time, the combined volume of low-selling or less popular DVDs will make up the majority of the market. Assuming that the demand for DVDs can be described by the power law, this means that the less popular DVDs would comprise of the "long-tail" of the power law. The opposite end of the graph where more popular movies are located is called the "head". More details can be found here.

The argument is that the consumers have very different tastes and will choose a wider variety of films over time. This means that the demand for DVDs will shift from the head to the tail. However, looking at the data from Netflix, the opposite seems to be the case where Top 100 DVDs continue to gain a larger share of the rentals. This result is explained by the fact that the growth of Netflix in the early years was mostly credited to movie buffs or enthusiasts that drove demand towards the tail. Now, the main drivers of Netflix growth is the mainstream audience who drive growth back towards the head.