The economics bloggers are, understandably, excited about Radiohead's decision to literally charge what the market will bear, allowing its new album to be downloaded for any sum you like, as low as a (British) penny. Tipping is, as Greg Mankiw points out, one of the most mysterious phenomena economists study. No one understands why the social norm is so strongly self-enforcing that Americans give tips to almost anyone who provides a personal service, even though most of those transactions are with people you'll never see again. Free Exchange calls it "a bold and potentially costly move for a band whose previous six LPs have sold millions of copies", but Tyler Cowen thinks that financially, it may be a smart move:
1. Radiohead is an indie cult band with extreme loyalties from its partisans and the possibility of attracting more such partisans by seeming "cool."2. Radiohead peaks high on the charts (#3 for their last release, if I recall...) but I believe they sell the product pretty quickly and don't have a long run at the top. Again, they'd like to widen their fan base.
3. Radiohead's gambit has reaped enormous publicity, but this won't be the case next time.
4. Many donors will give to a highly visible "cause of the month" (remember the outpouring of support for the tsunami victims?) but they won't necessarily give on a regular basis.
5. Radiohead probably has an especially high ratio of touring to CD and iTunes income; see #1. This scheme is a natural for them but not for Kelly Clarkson.
What we will see is lots of lesser bands (and authors) giving their work away for free, but that trend has been underway for some time.
Obviously, I had to try it. It turns out that the download isn't quite free: there's a $1.00 charge for paying by credit card, and if, like many Americans, you forget to double whatever pittance you decide to tip them, you could end up paying quite a respectable sum.
This brings up one of the more interesting points. While the download is free, the physical discs with all the notes and bonus material are 40 quid . . . or about $80. This is quite a lot to pay for an album, even if you really, really like the band. So in effect, Radiohead may have created a really effective price discrimination system: the free download might not only rope in lukewarm fans like me who would have put off the purchase, possibly to forever, but also create goodwill that encourages more of their fans to buy the super-expensive (in America) discs.
Another way it might work is that the very popularity of the free (or low cost) download might force dedicated fans to spend a lot in order to signal their committment to the band. Music has a substantial status component to its consumption. If everyone and their lame younger brother has downloaded the new album for a pittance, you might have to order the discs just to set yourself apart from the hoi polloi.
There's another economic aspect that a reader pointed out: the exchange rate. Both downloads and discs are currently priced in pounds, and the pound/dollar exchange rate is both bad, and probably going to get worse. With Bernanke cutting rates, and Mervyn King of the Bank of England holding them steady, the pre-orders will likely get more costly by the day. This doesn't benefit Radiohead (rather the reverse), but it means that smart fans will lock in now.
if, like many Americans, you forget to double whatever pittance you decide to tip them, you could end up paying quite a respectable sum.
Surely you mean halve the tip?
I assumed she meant the exchange rate, you enter in "10" but that's in pounds.
If artists rarely made over $3.00 on a given album anyway, and this method locks in a base price of $1.00, plus reduces marketing costs to $0, it might actually work the same as releasing via a big label.
The incremental contributions will vary, so that in some cases you would would end up with maybe $1.01 (below corporate compensation) or $5 (above corporate compensation), but the freeness of it almost guarantees volume, possibly in the millions, at $1/person (and assumming the credit card fee is not being absorbed mostly by the issuing companies).
I think the drawback is that once you give someone something free, that's what they will tend to want to pay for your next product, unless you are unquestionably addictive.
Also, I think some of the same types of people who might be remotely interested in Radiohead, are also the same types of people who are remotely aware of how to get their hands on a free copy via other methods should the lukewarmness become slightly more warm. So I don't know that a Hi/low marketing strategy, will necessarily work.
Itunes is the answer to enthusiasm for a song and having good income, peer to peer networks are the answer to lukewarmness and being spewed from the mouth of Radiohead's physical product pricing.
Forty pounds doesn't seem outrageous for this:
The DISCBOX costs £40. It contains the album on CD and on 2 x heavyweight 12" vinyl, plus an enhanced CD containing "NEW SONGS, ALONG WITH DIGITAL PHOTOGRAPHS AND ARTWORK". All this comes encased in a hardback book and slipcase. Discboxes are being made to order and will be shipped on or before December 3rd.
Maybe the album just sucks, and they've priced it accordingly.
I don't want to give away the ending, but everyone is going to pay the minimum. This is hardly an interesting economics experiment. It is however a good example of price moving toward marginal cost.
iTunes income? Radiohead is not, for their own inscrutable reasons, on iTunes at all. They are on Amazon's new MP3 site, but that's too new to have provided much income yet.
"Another way it might work is that the very popularity of the free (or low cost) download might force dedicated fans to spend a lot in order to signal their committment to the band. Indie music has a substantial status component to its consumption."
What are you talking about? Maybe people just want the product, ya know, so that they can use it? And Radiohead is not indie.
Nope. I said it seemed like "a bold and potentially costly move," when actually it's quite sensible.
Wrong. In my own social circle, many people have preordered the digital downloads, and out of curiousity I collected a sample of 25 different prices voluntarily paid by people. They range from US$3 at the low end to US$10 at the high end. The second-lowest amount paid was US$5. There is the possibility that my friends are lying to me, but I don't believe they are. These are people who have openly discuss stealing music from peer-to-peer groups. Yet they willingly gave money for this album. I think that's a very interesting economics experiment indeed.
Also, I think Megan is on to something when she suggests that the Discbox may act as a signal to other fans and therefore be worth the premium price. Those who think that albums are purchased solely to be listened to either weren't around 15 years ago or have never been part of an avid fan community like Radiohead's, which is no stranger to fanaticism. Last time I saw them in concert there were a number of Radiohead tattoos visible in the crowd, which has not been the case for most bands I've seen and does suggest a heightened level of wanting-to-demonstrate-fandom-for-this-band-ness.
I like to support the act for pursuing distinctive and design-oriented packaging, enough so that when the band released "special edition" discs for two prior albums (Kid A and Hail to the Thief), I bought those at a higher price. Eighty dollars exceeds what I'm willing to pay to support artistic packaging.
The band has announced, I believe, that a straight-up album (CD, liner notes, that sort of thing) will be available for purchase in 2008.
So I'm a Radiohead fan, and I'm planning to download the album. What price should I pay? Here are some thoughts:
1. I could pay the minimum. This is like the economists' solution to the ultimate game. It's logical, in a way, but it doesn't feel right. Plus, it discourages this sort of thing in the future, which is bad. Of course, I realize that my one decision has a de minimus impact, but then so does voting.
2. Emusic works out to about $0.25 per track. The album has 10 tracks, I think, so $2.50. Of course, Radiohead's other albums aren't available on emusic, because they had been on a major label.
3. I could pay an amount that would make the band indifferent to selling the album or allowing me to download. Assume the band would get about $3 per album if they went through a record company. They had to bear all the music production costs themselves, plus whatever marketing costs are associated with the website. So to make the band about even, this amount might be $5. I'm not an insider to typical industry contracts, so I don't know how good this guesswork is.
4. What I would have paid for the CD, less the value of the packaging and the decreased sound quality associated with a download. And I'm old enough (mid 30s) to like to have a cd copy of things. Let's call this consumer value ~$12-2=$10. This is the same as if I had bought the 10 tracks of the album on itunes.
My sense is to pay a total of $7.50, splitting the difference of the consumer / producer surplus created by circumventing the distribution company. Subtracting the $1 they are charging for processing, I'm planning a donation of $6.50, or GBP3.18.
It's fantastic to see Radiohead using this model of distribution. Majors are and always have been vampires feeding on both the musician and the punter.
I'm happy to pay full price to the band and their management.....and know that it goes directly to them. More power to you boys! Congratulations.
It seems that this pay what you want model is more about the reaction from the public than any scheme. I got bored reading the comments; has anyone mentioned the obvious difference between a lossy compression format and the actual CD? What sound do sheep make?
I paid $0.00. Why pay for the download and then pay again for the disc box or individual CDs, once they are released? Have a free listen and then decide. The band have my info, so if I do purchase the disc box later, they will know that giving me a free taste was a smart move. Based on the bootlegs from last year's tour, I'm going to want both discs, even if it means shelling out $80, but since they aren't shipping until December, I might as well grab the download now.
i pre-ordered the downloads. i'm a recording artist myself. i gave radiohead $9 for these downloads. good art should be supported. also, everyone should be able to hear it if they like. the thing with this is it's cutting through classes (when i'm broke, i can't afford to buy cds) and anyone can pay what they can afford, what they think it's worth, if they want to just hear it and aren't sure if they like it they can get it for free then. in any of those cases, people will be listening to radiohead. and isn't that the point?
it was a pleasure to give money to the people making the art rather than to a corporation making money off of the artists.
download sales are basically free money for the artist anyway, so i'm sure radiohead is doing just fine.
The most obvious thing to do is to pay the minimum before hearing it, if one is interested, and then "buy" it again for whatever the difference in value is, if you liked it enough to have paid more in the first place (had you known exactly how much you were going to like it).
(Me, I won't bother - I separate myself from the hoi polloi by not owning a single Radiohead album (or even having stolen one from the interwebs). Though more accurately it's not a signaling mechanism, as much as not particularly caring for Radiohead.)
It certainly is interesting, and it might be fairly successful. This time around at least. But some of its success will probably be from the fact that Radiohead is a pretty well known band already, and it is also the first time anyone has done something like this. So they basically have gotten a lot of free advertising from people talking about it. If more people tried the same thing then it stops becoming newsworthy and doesn't get the free bump.
I am reminded of a Public Image Limited concert I attended in 1984. They had put out an album in two different formats -- one was just a regular double album in a cardboard sleeve(cost about $15), and the other was a set of 4 or 5 EPs in a round metal box (like a movie reel box) which cost about $45. During the concert Johnny Rotton prowled the stage and asked (paraphrasing)How many of you were fool enough to buy the metal box?? and he chortled with glee at the con he had perpetrated on his fans.
I am an artist who has been on both major and minor record labels, and who has also sold her CDs without label assistance/interference. I currently have a lot of complete songs on my website to which one can listen for free. I find this Radiohead move - the logical next step - tremendously exciting. I never made much money while on a major label even though the records were selling well internationally. The contracts were constructed in such a way that I never ever would. I have done rather better doing everything myself (except for being tired all the time). Groups like Little Feat encourage taping of their live shows (and subsequent tape-trading in the community); I have seen this greater involvement with and connection to the fanbase have an overall beneficial effect on CD sales and concert attendance. What if someone would start to trust their fans to set a price? Bravo to Radiohead for doing it in a high-profile way. The greatest power we have over our art, and the single one that cannot be taken away, is the power to give it freely away. It is not the fans who begrudge the artist a "living wage", but rather the industry as it is constituted today.
that's the right thing artists and the industry(if any in the future) should do. after years of record labels exploiting money from artists and their fans, the internet has done such an impact on the record industry that the industry is on the verge of collapse and artists like radiohead are starting a revolution making the industry communist, which is the first word to come to me on hearing the news. there are some similarities between radiohead's marketing strategy and karl marx's theory. since internet makes what the listeners want to hear go free, artists don't have to make money for their boss of the record label but make really good music straight for the people and get what they deserve directly from the fans. in china, we call them people's artists. maybe radiohead never thought of being a people's artist, but the invisible trend is on its way.