I blogged a few weeks ago about the slow death of hard format music, and suggested that the music industry was reverting to an earlier model in which the song was the unit of currency. Radiohead has offered a twist on this by announcing that its new record, In Rainbows, will initially only be available from its site – and fans can pay what they choose for the download.
The news seems to have overloaded the site, to judge from a brief posting this evening, but when you click through the In Rainbows store to the download, you get a message which could become one of those defining phrases. The price box is empty, with a question mark below it. Click on this and you’re told, “It’s Up To You”, with another question mark below it; and this time you get a page which say, “No, really. It’s up to you“.
With Trent Reznor of Nine Inch Nails, also a ‘marquee’ name band, telling Music 2.0 that ““We will put out one last album for Universal and after that we will sell albums directly to fans from our website at (say) $4 an album”, there’s clearly something going on here. (It’s worth clicking through to the Music 2.0 posting for the detail of the interview, by the way.)
Obviously the economics should be familiar enough to everyone by now: if you can send something to someone digitally, the marginal costs are close to zero, so one makes a profit on any marginal revenues slightly greater than zero.
But so far the model has only appealed to musicians who have a weak negotiating position with record companies.
However, even marquee name bands make little on CD sales once all those atoms have been shipped through the distribution chain. Futurismic did some sums: “Even if the average payment for a download is £3, Radiohead will perversely still get a fair bit more money than the 5% -odd royalty cut of a £10 CD sold in HMV or Virgin.” Maybe more than 5% in HMV if you have have Radiohead’s multi-million selling clout. But probably about that on the copies sold through the supermarkets once the Asda and Tesco buyers have worked their supply chain magic.
And effectively those other artists have tested the model – so we have some idea of how it works. Jason Kottke pointed me towards an article on the Freakonomics blog which suggests that as well as economics, some psychology is also required. Siberry gives her fans choices (from free, positioned as ‘gift from artist’ to ‘pay now’ to ‘pay later’, and also shares information on how many people have made what choices.
Even more cleverly, Siberry posts the average payment rate for each song as you pull your payment option from the drop-down menu — another reminder that, Hey, you’re more than welcome to steal this music but here’s how other people have acted in the recent past. Methinks Ms. Siberry grasps the power of incentives quite well. This allows for at least a couple of interesting things to happen: people can decide what to pay after they hear the music, and see how much it’s worth to them (it looks like people generally pay the most per song under this option); and it takes the variable-pricing scheme that economists love and puts it in the hands of the consumer, not the seller.
The Freakonomics post was in May 2006 and was sceptical that record companies would try it – because Siberry was talking to fans. They were right about the record companies bit, and obviously record companies have no fans at all. What’s happened in the interim? The broadband universe has continued to expand; the download market has continued to grow; and the high street music shops have got worse. And maybe, as sites like MySpace have taken over the A&R and development functions that record companies used to claim as justification, we’ve realised that nowadays they effectively get in the way of the relationship between the musicians and their fans.