The Radiohead experiment: factors to consider in pricing

Posted on 8 November 2007
Filed under Copyright, E-commerce, Music
2 comments

Via Truth Happens, I saw this morning that the average price paid to download Radiohead’s “choose your own price” album, In Rainbows, was about £2.90, or about $6 U.S. In fact, only 40% of downloaders paid anything at all.

The Guardian story frames this as basically a loss for the band or the industry — perhaps understandable in British terms, where Virgin Megastore carries Radiohead’s CDs for £9.99 - £13.00. But purchasing power is considerably different in U.S. dollars, let alone rupees or reais. The commentary in comScore’s press release, and on their blog, provides a more useful perspective.

But I found this news interesting for another reason: that’s about what I paid. Here’s why:

I knew I was looking at £0.45 (about $1) just in processing charges already, plus a foreign transaction fee from my credit card. The band sees none of that, but I still have to pay it — comparable maybe to the cost of driving to a store. (The prices in the study exclude these fees.)
I was downloading an album I hadn’t heard one bar of, solely on the basis of b(r)and recognition. I had very little assurance I would like even a single song on the album. In fact, I don’t recall being able to find any pre-release reviews, either.
The download was 160 kbps. I would have paid more for a higher bitrate or lossless compression. To me, 160 kbps is less than the full product.
The download was only available in patented MP3 format, rather than an open format like OGG or FLAC.
On the plus side, the download was not crippled with DRM — a sine qua non for my purchase.
The album is still under full copyright: I can’t remix it or share it with my friends, etc. Now, I don’t realistically expect Radiohead or bands similarly situated to release their latest album under a Creative Commons license or into the public domain, but I would have been willing to pay a premium
The download didn’t come with any album art, track information, or lyrics.
The download carries low overhead and near-zero marginal cost of distribution, so the additional costs of physical manufacturing and distribution can be factored out of the price.
Minus the aforementioned overhead, 100% of the download revenue went directly to the artist: nothing to the label, retailer, iTunes, or anyone else. If overhead amounted to as much as 20%, the artist still gets $4 from my purchase. That’s a lot more than most musicians will take home from sales of a physical CD on a major label.

In other words, $5 actually seemed like a relatively generous price, rather than stingy as the Guardian thinks. As it happens, my fellow Americans paid even more, on average: about $8.05.

If I was a band with an established fan base, I’d have to take this as a very encouraging business model. I’m not suggesting this will work well for everyone: not everyone has thousands of fans willing to spring for an album they’ve never heard, and not everyone has the resources to self-finance professional-quality production. But the myth, until now, has been that the Internet helps the artists in the long tail, not the superstars. This is an encouraging anecdote for established acts.

I think I’d put a minimum price on the download, such that each download at least covered the cost of overhead — maybe $1. I think a lot of the 60% of unpaid downloads would convert at that price point, and few would instead turn to p2p. The biggest obstacle here is probably people without a credit card (teenagers).

I think this model could succeed with a minimum as high as $5 (though I think that the higher the minimum, the less “extra” some buyers may be willing to shell out — at some point, “minimum price” simply looks like “the price”).

A reasonable “suggested price” might not hurt, either. If the checkout box listed $8 by default, rather than being blank, some people would still adjust the price up or down, but I think the average price would end up higher than with no suggestion.

I’m sure that advocates for the status quo in the music industry will spin these numbers as arguments for maintaining the status quo. But a deeper analysis shows a big win for both artists and consumers. This is an important experiment, and I hope the lessons — autonomy and a decent take-home for the artist — will be communicated well in the public discourse.

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