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Radiohead: Is $2.26 per album enough? The ?piracy? v. obscurity tradeoff

By Hanno Kaiser

A while ago we discussed Radiohead’s decision to sell its new album on a “pay us what you think it’s worth” basis. Today’s NYT has a nice article on the band and the album release. With respect to the donationware pricing, Jon Pareles reports:

The band and its managers are not releasing the download’s sales figures or average price, and may never do so. “It’s our linen,” Mr. Hufford said. “We don’t want to wash it in public.” A statement from the band rejected estimates by the online survey company ComScore that during October about three-fifths of worldwide downloaders took the album free, while the rest paid an average of $6. Factoring in free downloads, ComScore said the average price per download was $2.26. But it did not specify a total number of downloads, saying only that a “significant percentage” of the 1.2 million people who visited the Radiohead Web site, inrainbows.com, in October downloaded the album. Under a typical recording contract, a band receives royalties of about 15 percent of an album’s wholesale price after expenses are recovered. Without middlemen, and with zero material costs for a download, $2.26 per album would work out to Radiohead’s advantage — not to mention the worldwide publicity.

As a general matter, the tradeoff here is one between royalty-free dissemination and obscurity. The graph shows a simultaneous release of a for-pay good (P) and a free electronic download (F), e.g., books, music, etc. Some customers substitute F for P (x%). Others buy P because they became aware of it through F (think Google, costless recommendations, etc.) (y%). As long as y% > x%, the publisher is better off. This is very likely a winning strategy for writers in the “long tail. As to music, I’m not sure, because the free download is a perfect substitute for the for pay version. Hopefully Radiohead will release its data at some point, or others will repeat the experiment.

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Full post as published by Antitrust Review on December 09, 2007 (boomark / email).