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Is Radiohead's "In Rainbows" a flop or a blockbuster?

Politically-fueled Indie/Alternative Rock band Radiohead stood up to DRM and record label's campaign of terror against music listeners when they offered listeners the ability to name their own price and receive their new album via an Internet download.

The band broke headlines in early October when it announced that fans can get the new album two ways.  First, they can go online and download it at whatever price they want -- from free to 99.99 GBP.  Downloads began October 10th.  Serious fans could also elect to purchase a box set, with a CD version of the album, vinyl copies, art books and bonus tracks for a mere $81.75 USD.  These box sets will ship on December 3rd.

So nearly a month later the record industry, tech-observers, politicians and music lovers are scratching their heads collectively and trying to figure out whether Radiohead's album was a success or a failure.  The basic problem is that the band itself hasn't released any information on sales figures yet, so it is hard to tell what is real and what isn't since all sales are done exclusively by the band's website.

In the U.S. and the U.K., a 12 percent royalty to the CD artist about the best an artist can expect, and typically the artist is hit with many additional fees of various sorts by the label.  This means that on the average CD, which costs around $12 to $14 USD at major retailers, the band will make around $1.00-$1.50 USD.  On the other hand, little bands find it hard to "make it big" without a label, as labels are willing to front bands large amounts of recoupable expenses if they think the band has significant ability to make it big. 

A very good read on this topic, is "The Problem With Music" by Steve Albini, independent and corporate rock producer, who is most famous for producing Nirvana's "In Utero".   The article, which can be found here, reveals that on a typical "hit" rock CD, the label might make around $710,000 USD, while a member of the four-member band would only make about $4,000 USD in net income.  Of course, some artists obviously wildly surpass these figures, but these are typical numbers given by someone very entrenched in the music industry.

To top it off, record companies have adopted draconian tactics in using upstream takedowns on torrent sites, spies and massive lawsuits against individuals and groups which share music.  Several bands, including Nine Inch Nails, headed by Trent Reznor, and Radiohead have thrown in the towel and said the record labels have simply gone too far and are no longer necessary.

The real quandary is, as idealistic as these statements sound; do they make economic sense for the artist?  This has left many holding their breath, waiting to see what happens.

Well, the first news has been from internet research firm comScore.  comScore reported that only about 38 percent of people downloading the album paid for it.  Among paying fans, Americans on average paid the highest amount, at $8.05 USD per download.  Fans from other countries average $6.00 USD and 17 percent of paying foreign fans paid only a penny to $4.00 USD.  Finally, comScore found that on average (including non-payers) the album sold for $2.26 USD.  A source close to the band was referenced in a Wall Street Journal article as saying that 1.2 million copies of the album were downloaded on the first day of release.

If accurate, it would mean that Radiohead made nearly $2.7 million USD before expenses, during its first day of sales, an incredible figure.

Some observers were pessimistic about these results though and state that the band could have done much better with a traditional business model. Average profits of $2.26 USD, they say, is nothing to cheer about.

Radiohead released a statement countering these comments and also disputing comScore's figures.  Radiohead said:

"In response to purely speculative figures announced in the press regarding the number of downloads and the price paid for the album, the group's representatives would like to remind people that, as the album could only be downloaded from the band's website, it is impossible for outside organizations to have accurate figures on sales."

This is true --  comScore did not get information directly from Radiohead's site; rather it used voluntarily installed information gathering software that allowed music listeners who bought the album to respond about how much they paid.  While comScore has a solid user base over 2 million voluntary users, many feel that certain kinds of internet users may be drawn to comScore, skewing demographics. 

So if comScore is wrong, did "In Rainbows" fall below its estimates or did it beat them?  Some see Radiohead coming out to deny the statements as an indication that "In Rainbows" exceeded the estimates.  It’s all speculation until the real data comes out from Radiohead.

However, despite the uncertainty, many music figures are already weighing in on the band's success or lack thereof.   Nine Inch Nails' Trent Reznor congratulated Radiohead for bravely fighting the system, but he feels their business strategy was flawed. 

Reznor is following a different business strategy on his release of Saul William's album, "The Inevitable Rise and Liberation of NiggyTardust."  He is offering fans only two options:  either download the album for free or buy it for $5 USD.  Furthermore, all options are not created equal; the $5 USD version will be in 320 kbps MP3 or FLAC lossless audio tracks, while the freeloaders will only get lowly 192 kbps MP3.  Reznor hopes that the improved track quality will lure many audiophiles to pony up five dollars for the paid option.

Ultimately the success or failure of this movement rests largely on two factors -- how well optimal distribution mechanics can be developed and, most importantly, on the average music listener's attitude and level of altruism.  Obviously, acts such as Radiohead and Nine Inch Nails are unlikely to totally flop in their efforts, due to a large, loyal fan base.  Whether their efforts will lead to surprising success and catch on with smaller acts nationwide, though, relies heavily on these factors.



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RE: Reznor getting it right
By Vanilla Thunder on 11/12/2007 10:29:39 AM , Rating: 3
I agree. I would gladly pay $5 for the 320 kbps MP3 or FLAC lossless audio tracks from any band that I'm a fan of. I think this system works, but not every band could simply "give" the music away. Smaller bands would have to set a minimum price point to make this a successful business model. I hope it happens.


RE: Reznor getting it right
By splint on 11/12/2007 12:09:27 PM , Rating: 2
Actually, Radiohead’s model is a more profitable one. Basing a price on what people are willing to pay more accurately fills the area under the demand curve. This is the same model that airlines use to sell tickets. You don’t know what the guy next to you paid and the airlines intend to keep it that way in order to maximize profits. (Although in that model the seats are a finite resource.)

Radiohead’s big flaw was pointed out in another forum – you can’t try-before-you-buy. You decide to pay or not and then they sent you a link to the album. They ensure one download per user because you cannot redownload using the same email address. This way, if you go back and pay with a different email address their statistics get screwed up. (Maybe they can filter by IP…)


RE: Reznor getting it right
By Ringold on 11/12/2007 1:36:06 PM , Rating: 2
quote:
Basing a price on what people are willing to pay more accurately fills the area under the demand curve.


Lol*, firms do that by offering what they think is your maximum willingness to pay, not saying "Please pay your maximum, but here is the option to pay nothing instead!". When faced with that option, and this should be obvious, the overwhelming economic incentive is to free ride. Public goods face the same problem; we'll all watch PBS, but who donates?

It ends up being an act of charity. How much you pay for something you can as easily get for free depends on how good you want to feel about yourself or what impact you suspect paying up may have on your social status by admitting to having either paid up or paid nothing.

* My first time starting a DT sentence/post with Lol. May it be the last. But I was lol'ing..


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