Radiohead’s Experiment: People Taking Advantage




It’s been one month since we all started buzzing about Radiohead’s latest experiment: a downloadable set-your-own-price release of their latest album. I’m sure many people saw this as the band’s vote of confidence in the genuine goodness of humanity—although I’m sure they realized that not everyone would be willing to pay when they could get it for free.

And it looks like both sides are right. A few weeks in, it looked as though the average price being paid was £8 (about $16). However, immediately after that report came a second—in reality, the price paid was more like £2.50 (about $5)—less than Radiohead would have received from their record company per album had they gone the traditional route.

And now comScore reports on the data—and unfortunately, it looks like the majority of downloaders have realized that, as comScore puts it, “free + download = freeload.”

The good news is that a lot of visitors to the In Rainbows album site did “convert” and download the album. However, it looks like less than 2 in 5 agreed to pay any amount for the download. Interestingly, the proportion of freeloaders was slightly lower in the US than outside it (60% versus 64%).

On average, those who paid, paid $6.00 per download—but taken with all the downloads, the average price paid per download drops to $2.26. In the US, the numbers were slightly better—$8.05 on average per paid download ($3.23 on average for all downloads) versus $4.64 on average per paid download outside the US ($1.68 on average for all downloads).

After the freeloaders, the post popular price point was $4 and under (with 17% of all downloads), followed by $8.01-12.00 (12%). The bulk of the proceeds, naturally, came from this last group.

comScore features a quote from one pleased customer that I find telling (emphasis mine):

“I am surprised by the number of freeloaders,” said Fred Wilson, managing partner of Union Square Ventures and well-known music aficionado. “The stories to date about the In Rainbows ‘pick your price’ download offer have been much more optimistic. I paid $5 U.S. and had no reluctance whatsoever to take out my card and pay. It’s a fantastic record, the best thing they’ve done in years. . . .”

Yeah, I have no reluctance whatsoever getting a “fantastic record” at 67-75% off the usual retail price of any other album, too. Wilson continues with the more salient point:

This shows pretty conclusively that the majority of music consumers feel that digital recorded music should be free and is not worth paying for. That’s a large group that can’t be ignored and its time to come up with new business models to serve the freeloader market.

Can you think of a business model to better serve (and exploit) the freeloader market? (If you can, perhaps you shouldn’t be sharing it here in the comments—go find some VCs or something!)

Please note that even if it’s true that bands make all their money on touring and not on CD sales, it’s immaterial here: Radiohead would have toured whether they released the album as a pay-what-you-like download or a traditional album. The comparison being made by comScore, CNET, et al. is how much they would have made under their old contract versus how much they’ve made now.

  • rcjordan

    Huh! I thought it would work once, maybe twice, then the marketing “brilliance” would be all played out. Well, I guess all those Digg and Reddit members voting up the endless number of “RADIOHEAD STABS THE PROFIT-MONGERING MUSIC COMPANIES IN THE EYE WITH A SHARP STICK” articles will have something to vote about, eh? …Or, then again, probably not. Being wrong sucks.

  • http://sdfa.com jeff

    this article makes a lot of assumptions. like how much they typically got ($5.00) per album going the traditional method. i have seen other reports that say its more like $3.00. if the $3.00 number is true than they did do better with the new model. even if they didnt, this was not about making themselves more money. it was about making their music available to more people at lower prices. and it was a huge success.

    rcjordan: you seem very happy that they might have failed. do you work at a record company or something… relax loser.

  • rcjordan

    >even if they didnt, this was not about making themselves more money. it was about making their music available to more people at lower prices.

    Power to the People! Hell, I haven’t heard that kind of empower-the-underclass drivel since the 60’s.

    >do you work at a record company or something

    Err, No.

    >very happy that they might have failed.

    Mostly, I’m interested in how, or if, the social news site membership will respond to a negative twist of events regarding free music. FWIW, I’m expecting them to respond just as you have.

  • rcjordan

    You also forgot to cover the “They’ll make more money on the concerts” angle, Jeff. It’s brought up in this thread’s comment stream, which is a pretty good read.
    http://avc.blogs.com/a_vc/2007/11/freeloading-in-.html

    Even if it is a huge success financially for RH, keep in mind this was the first cut, the new anti-music-marketing-power-to-the-people thing complete with Digg and Reddit (Fark?) cheerleaders. Once we settle into this as routine, I think getting a 10% paid conversion would be likely.

  • Jordan McCollum

    @Jeff—My “assumptions” were reported to me as facts: “Radiohead normally make about £3 ($6) (after royalties and such) with their record label.”
    (source)

  • http://www.myspace.com/MediaMisfit MediaMisfit

    Can anyone tell us if the average price payed was justified by an increase in volume of distro?

  • http://www.gowfb.com GoWFB

    rcjordan, you sound to me like a typical imperialist, capitalist, fatcat; sorry if that sounds a little harsh.

    And i totally agree with Jeff that this was an experiment that was greatly successful because it made a product available to consumers at a lower rate and cut out an unecessary middleman who adds absolutely no value. If only more artists would go this way, and they will because this is the way for the future.

  • http://www.myspace.com/eatmorglue EatMorGlue

    Interesting read, but I’m not entirely clear whether the data accounts for the concurrent sales of discbox orders (@ 40 quid or 80 bucks a pop), or whether it is purely based on the downloads and donations made independent of discbox sales.

    If it does account for it, it drops the floor from under that $2/album figure to something even more dismal. But if it doesn’t account for that, then they made significantly more than $2/album sold.

    But my favorite part of the post was the quote at the end about this being the best album Radiohead has done in years, considering the last Radiohead LP came out 4 years ago. :P

  • Mark C

    I can not see this being a viable business model for the future, however I would guess that Radiohead did very well out of it (with the increassed exposure). The album would have flopped if the traditional route was taken.

    In defence of some of the free loaders, (again I’m guessing) a lot of these people will have been listeners who have never listened to Radiohead (like myself) and wanted to check it out, if they liked it then Radiohead have picked themself up a futuer paying customer. If it turns out to not be your cup of tea then why should you pay for an album that you wil only listen to once and gain no enjoyment out of.

  • http://www.camaban.co.uk Adrian Lee

    The process of ‘ordering’ the album through the web site sucked.

    I went to check it out. I’d not heard anything of the album previously, so actually I opted to not pay for it to start with. If I then liked it, I would’ve been willing to go back and pay £5 or so for it.

    But, in order to simply download the file, you had to enter all your details, and even though I’d entered ‘0’ for the amount, I was still asked for my CC details.

    Lots of hassle just get some ‘free’ music, so i went and downloaded it via Bit Torrent instead.

  • http://seomization.blogspot.com/ seoz87

    and don’t announce your site too, or you may find yourself in jail someday. :P

  • http://www.camaban.co.uk Adrian Lee

    Is downloading In Rainbows via any kind of P2P system, or copying it off a mate illegal considering you can download it off the official site for free?
    My impression is ‘no’. But if they want me to only get it via the official site, they should make an effort to make the process work properly.

  • http://bushidoblog.com.ar Zen

    “I am surprised by the number of freeloaders,” LOL :D

  • http://www.worldclasspoetryblog.com Allen Taylor

    I think everyone is missing the point here. This was an obvious market test. It tells Radiohead, those in the music industry, and digital product marketers everywhere (those paying attention at least)

    1) that artists can control their distribution and make money (sometimes even more money than they would have made otherwise)
    2) that people are willing to pay an average of $6 for a music album download, which will save them about $10 off the usual retail price

    For Radiohead (and any other artist), this means they can sell fewer copies of their albums and make more money by “negotiating” the optimum market price and controlling their own distribution. Next step: Offer a music download for $6, no freebies, and see who bites. My bet is that some of those freeloaders will convert to buyers if they’re not offered anything for free.

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  • rcjordan

    >rcjordan, you sound to me like a typical imperialist, capitalist, fatcat; sorry if that sounds a little harsh.

    No, it sounds about right. But, just to be clear, I do not give a rat’s derriere as to whether the music industry, bands & artists included, lives or dies. My interest is in the response(s): [1] to the marketing ploy itself by the fan base and [2] the defense offered by free-is-sustainable fanboys.

    —-
    Interesting point from the comscore page:

    Michael Laskow, CEO of TAXI, the world’s leading independent A&R (Artist and Repertoire) company. “Radiohead has been bankrolled by their former label for the last 15 years. They’ve built a fan base in the millions with their label, and now they’re able to cash in on that fan base with none of the income or profit going to the label this time around. That’s great for the band and for fans who paid less than they would under the old school model. But at some point in the not too distant future, the music industry will run out of artists who have had major label support in helping them build a huge fan base. The question is: how will new artists be able to use this model in the future if they haven’t built a fan base in the millions in the years leading up to the release of their album under the pay what you’d like model?”

    http://www.comscore.com/press/release.asp?press=1883
    —-

  • http://www.camaban.co.uk Adrian Lee

    Artic Monkeys managed it. They gave away CD’s of their music free at the little gigs when they were getting going. That music got shared around, people liked it, they got written about in NME, they got some radio time, and their first, very limited release, single sold out long before it was actually released.

    At which point they had record companies effectively bidding for their contract, and Arctic Monkeys being able to dictate some of the terms, rather than the other way round.

    That worked because they were/are actually a pretty decent band. There are a lot of ‘artists’ around now, and in the past, that got there due to record company marketing, not due to being any good. Those are the ones who will get hit harder.

  • Jordan McCollum

    Giving away free CDs to people who are listening to you play now is vastly different from offering your music free for download. The scale of distribution is completely different.

    And how many bands give away cheap or free CDs when they perform in hopes of making it big? Many more than we could name, I’m sure.

  • http://www.camaban.co.uk Adrian Lee

    So why aren’t they all making it?
    Well, are they that good?
    Do that have that wide an appeal?

    The point with the Artic Monkeys was that the music they were giving away got spread around places like MySpace, and people liked it, so spread it around some more.

    If people don’t like it, or maybe don’t like it enough to share it, yeah, you’re gonna struggle to hit the big time.

    I’d be interested to see a filter based on actual popularity, rather than a filter based on marketability and money….

    I imagine a number of good bands have already missed their potential due to not having the money to market themselves, or not getting a break from a record company that could give them that boost.
    There are enough stories of bands who only made it by the skin of their teeth, either nearly not being signed, or being taken on without any expectation of them getting as big as they have.

    I’m not saying it’s deffinately the way to go, so we need some bands like Radiohead to test the water a bit, and see how it actually pans out.

  • http://www.capeplates.co.uk Bob O’Donnell

    They tell people to set their own price for a record and are suprised some people choose £0? I think they did pretty well even at £2.50. That’ll teach em’

  • http://www.thevanblog.com Steven Bradley

    Everyone does realize that most recording artists make their money on live concerts and selling promotional items? The actual music has never been where they get their money.

    Radiohead could give every download away for free and still come out way ahead. How many new fans will they now have? How many of those new fans will attend shows and buy merchandise?

    How much more loyal will their fanbase be now that they’ve stuck it to the man?

    The direct return on the cd isn’t what this is all about.

    I agree too with Allen above. Who says the next time around the download will be pay what you want. Maybe they’re finding out how much people are willing to pay now and will be charging next time around.

  • http://www.seocopypaste.com SEO Copy Paste

    What’s more interesting, is Fred Wilson’s net worth. I would have thought that he would have paid a lot more than $5 considering the money he makes.

    Also, it’s important to note that not even comScore data is 100% accurate, I’d like to see radiohead’s figures.

  • http://www.youtube-video-izle.com vidi

    It is very hard to convince people to pay for digital music where there are many peer to peer sharing programs.

  • http://www.myspace.com/random your all gay

    ur all freaks and will go to jail wen i see the police. u fuckin nerds

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