How Radiohead Is Rewriting Rules of Online Revenue

Band Lets Fans Decide How Much They Want to Pay to Download Latest Record

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NEW YORK (AdAge.com) -- It seemed like end times for the time-worn notion of consumers paying for content. People migrating toward any number of sources that distribute news, video content and music gratis and with varying degrees of legitimacy; old media facing a future where they give it all away with the hopes that revenue drain will be made up by ad dollars.
What's this worth? Survey finds fans will pay about $10 for album.
What's this worth? Survey finds fans will pay about $10 for album. Credit: WENN

Then, Sept. 30, even the disruption was disrupted, if only for a news cycle.

It came in the form of an announcement on the website maintained by the British band Radiohead, which told the world it will allow individual consumers to determine how much they want to pay for a digital copy of its forthcoming album, available later this month. The pay-what-you-will strategy was immediately hailed as a as coup for consumer empowerment. It's also a wager on consumer altruism, the belief that fans will pay up despite essentially being able to download the album for free. What's more, a quick survey by U.K. magazine New Music Express found that fans were willing to pay about $10 for "In Rainbows." If those surveyed represented reality, the strategy will result in a hugely profitable haul for the band given the next-to-nil cost of digital distribution.

Media companies are mired in the dichotomy of paid vs. unpaid, ad-supported content, but could Radiohead be offering a third way, one that places power in the hands of consumers by allowing them to dictate the market value of what they're buying? Could media companies faced with slowing growth prospects find a bit of salvation in a payment model that might be uncomfortably close to -- gasp -- the old-fashioned donation associated with those tweedy public-broadcast pledge drives that flog $20 mugs and $40 umbrellas?

Won't work everywhere
Probably not. "It works for bands with rabid fan bases, and it works for organizations like NPR and maybe a high-school sports team's website, but it probably doesn't work for public media companies," said Rafat Ali, founder of PaidContent.org. "No one's going to put more money in The New York Times' pocket. They just won't. Plus, there are compliance issues with taking donations, and it'd be very difficult to scale."

The Radiohead news is a big reminder of the power of customer loyalty and how it extends even to crucial issues such as pricing. Other small-scale indicators also suggest that consumers, despite being depicted by record labels and movie studios as a thieving bunch of copyright violators, are willing to pay even when they don't have to if they're given some flexibility on price point and there's a real relationship between consumer and content provider.
'In Rainbows': Sale has been hailed as triumph for consumer empowerment.
'In Rainbows': Sale has been hailed as triumph for consumer empowerment.

Exhibit A is Magnatune, a four-year-old download site for music by unsigned artists, which allows customers to pay between $5 and $18 for a record. The average price paid, a spokesman said in an e-mail, is between $8 and $9. By contrast, Apple's iTunes charges 99¢ per track and between $9.99 and $14.99 for most full-length records.

Artist support
"Our customers report that they are willing to pay 20% over base cost because they know their money goes directly to support the artist and the company," spokeswoman Teresa Marango said. "All Magnatune artists receive 50% of the sale price of each album or music licensing fee."

Then there's Canadian folk singer Jane Siberry -- now known as "Issa" -- who employs a "self-determined pricing" model on her website. The average amount paid per song is $1.18, 19¢ more than the suggested price. Eighty percent of shoppers pay about the suggested level, and only 6% pay below. She also offers the option of paying later, after the downloader has listened to the music and can decide what's its worth.

Both Magnatune and Sheeba appeal to well-defined fan bases, either of specific musicians or new music in general, the kind of enthusiasts more likely to care about the well-being of the artist and hash out the economics of a download before clicking the mouse. So does Radiohead, only on a larger scale.

"The key," Mr. Ali said, "is having a brand with a high degree of customer loyalty."
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