Comscore announced a study today that many news sites are spinning negatively, including Billboard (a publication who have at least somewhat of a vested interest in the current industrial organization of the music industry.)
Study: Most Paid Nothing For Radiohead Album
Let's assume that one million people who visited the site actually managed to download the album, meaning that we should be able to calculate the amount of revenue like this: 38% of one million times the average price paid by those who did pay. Doing the math:
1,000,000 x 0.38 x 6.00 = 2,280,000
$2.3m in revenue in a month. That's really not bad. If you could sustain that over a year you'd be considered a pretty serious online business. And that revenue is pure gravy other than the cost of setting up the site, which was probably somewhere between 10 and 30,000 dollars. Sure, it cost them money and time to record the album, but because of things like ProTools and the ease of setting up a home studio, that costs much less than it used to. Also, recording the album is something they would be doing anyway, so its cost can be amortized over all of the subsequent activities of the band. In economic terns, the process of recording for an artist has a certain amount of innate utility (ie, they enjoy doing it) and the also need new material to promote their tour, which is how most recording acts make serious money. So even if you do include some of the cost of recording, the band are making a large profit from their online sales (possibly as high as 90%.)
In short, Radiohead made more than two million dollars on something that probably would have happened anyway (their album getting out on the internet before it was available on CD) but wouldn't made any money on. Not too shabby.
The interesting test will be when Radiohead start selling the CD. Will the online "sales" cannibalize CD sales? Or will people want to pay for a CD to go along with the digital files so they can have the pretty artwork, lyrics sheet, etc. Will people who heard about the album but couldn't figure out how the In Rainbows site worked buy the disc when they see it in the store, or featured on Amazon, or iTunes?
Another interesting experiment for Radiohead (or another band) to try would be to sell the album digitally on their own site but required payment--but made it much cheaper than a CD or whole album on iTunes (say 5 dollars.) They would lose the revenue of people who were willing to pay more than $5 (which is not many it seems) but I'll bet there are a lot of people who didn't pay anything who would pay $5 if the experience was convenient enough. So they might end up making more, since there are far more people who paid nothing than paid over $5.
Meanwhile, Pitchfork is reporting that the "In Rainbows" CD release may occur New Year's Day.
Study: Most Paid Nothing For Radiohead Album
According to a study examining how consumers reacted to Radiohead's "set your own price" gamble with the digital release of the new album "In Rainbows," 38% paid an average of $6. The rest paid nothing.Looking at the Comscore numbers, it's not clear that the experiment was a clear-cut failure.
Let's assume that one million people who visited the site actually managed to download the album, meaning that we should be able to calculate the amount of revenue like this: 38% of one million times the average price paid by those who did pay. Doing the math:
1,000,000 x 0.38 x 6.00 = 2,280,000
$2.3m in revenue in a month. That's really not bad. If you could sustain that over a year you'd be considered a pretty serious online business. And that revenue is pure gravy other than the cost of setting up the site, which was probably somewhere between 10 and 30,000 dollars. Sure, it cost them money and time to record the album, but because of things like ProTools and the ease of setting up a home studio, that costs much less than it used to. Also, recording the album is something they would be doing anyway, so its cost can be amortized over all of the subsequent activities of the band. In economic terns, the process of recording for an artist has a certain amount of innate utility (ie, they enjoy doing it) and the also need new material to promote their tour, which is how most recording acts make serious money. So even if you do include some of the cost of recording, the band are making a large profit from their online sales (possibly as high as 90%.)
In short, Radiohead made more than two million dollars on something that probably would have happened anyway (their album getting out on the internet before it was available on CD) but wouldn't made any money on. Not too shabby.
The interesting test will be when Radiohead start selling the CD. Will the online "sales" cannibalize CD sales? Or will people want to pay for a CD to go along with the digital files so they can have the pretty artwork, lyrics sheet, etc. Will people who heard about the album but couldn't figure out how the In Rainbows site worked buy the disc when they see it in the store, or featured on Amazon, or iTunes?
Another interesting experiment for Radiohead (or another band) to try would be to sell the album digitally on their own site but required payment--but made it much cheaper than a CD or whole album on iTunes (say 5 dollars.) They would lose the revenue of people who were willing to pay more than $5 (which is not many it seems) but I'll bet there are a lot of people who didn't pay anything who would pay $5 if the experience was convenient enough. So they might end up making more, since there are far more people who paid nothing than paid over $5.
Meanwhile, Pitchfork is reporting that the "In Rainbows" CD release may occur New Year's Day.
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