Radiohead's much ballyhooed promotion for its new record, in which the band is allowing fans to set their own price for downloading the music, isn't exactly inventing a new business model for a record industry now being torn apart by piracy. Data from ComScore released this week found that a large chunk of the British band's audience -- not an insignificant one in the context of today's splintering fan bases -- had no problem paying nothing or very little for the privilege of owning a copy of the eagerly anticipated album.
$2.26 per download
According to ComScore, 62% of people who downloaded "In Rainbows" did so without paying. Seventeen percent coughed up four bucks or less, while, on the bright side, 12% paid between $8 and $12. That yields a rather paltry -- but not necessarily unprofitable -- average of $2.26 per download. The news disappointed some who might have based estimates on an apparently unscientific survey by the British magazine New Music Express that found folks were willing to pony up about $10.
But the early data, based on the 1.2 million visitors to the "In Rainbows" website between Oct. 1-29, is open to so much interpretation. Here's the doom-and-gloom read: With its large, loyal audience composed in no small part of educated, sophisticated listeners, the sort who may actually care a bit about the issue of how artists are compensated, Radiohead seemed to be the best-case model for a pay-what-you-will strategy. But if only two out of five folks from that ideal customer segment are willing to pay, what does that say about the mass audiences that make up the bases of the major record labels? At worst, they're thieves; at best, cheap.
The more positive interpretation is that a relatively large group of people paid for something they could have gotten for free, with many paying at a rate that would likely turn a nice profit for the band, given that this part of the distribution for "In Rainbows" is being done without the support of a record label. In the context of its full retail strategy -- which includes a more traditional push in 2008 with the help of independent labels as well as an $80 box set now on sale -- the revenue from the pay-what-you-will scheme is all incremental and comes with minimal overhead. But it may be even more valuable as marketing.
Consider the alternatives
Consider the economics of the main alternative to what Radiohead is now doing. A partnership with Apple iTunes, the largest online music retailer, most definitely would have meant a higher price per download -- but it would also mean giving up 35% of sales to Apple boss Steve Jobs if the usual terms held. That deal would also have entailed the loss of buyers who would have scurried off to any of the many torrent networks where they could download "In Rainbows" for nothing at all.
Even the rose-tinted -- and, as such, very un-Radiohead -- interpretation doesn't mean the record industry, or, for that matter, any content provider, should follow the band's suit. Especially if it turns out to be the case that the bigger an artist is the less people are willing to pay per track, as some early indicators suggest. Other users of this or similar models report much higher average figures. The Canadian folkie Jane Siberry comes in at $1.18 per song, and Magnatune, which lets consumers set their price up to a point, comes in at $8 or $9 per album. But both appeal to much smaller niches than Radiohead's stadium-filling audience and both attract people likely to act on a concern about the artists whose music they're buying. Ms. Siberry, for instance, has a long open-letter about her pricing system posted on her website, and Magnatune's positioning is that it's artist-friendly.
Would this concern -- which pretty much slaps an ethical deliberation on a fairly routine consumer transaction -- translate to the blockbuster acts key to the business models of an EMI or a Sony BMG? That seems unlikely for a couple reasons, the least of which is how much the conglomerates are already pained by piracy. It's also difficult to imagine that the average Justin Timberlake fan would get too worried about supporting the fantastically rich, Jessica Biel-dating singer/actor. The same is true for deep-pocketed media companies in other mediums now suffering from monetization woes, whether film or magazine, though that didn't stop the music mag Paste from trying out a pay-what-you-want subscription offering.
The lessons learned from "In Rainbows" will end up looking pretty simple: that such a ploy is no substitute for a more full-throated retail strategy that makes some people somewhere actually pony up for the right to take some music home lest they spend some time in the holding cell of the local shopping mall. As a promotional scheme, too, it's brilliant not least for being a very rare kind of marketing program: one that doesn't add more cost but instead acts as a source of revenue in and of itself, even as it builds the kind of buzz you just can't buy.