Rafi Mohammed

How Much is Radiohead's New CD? Whatever Price You Want to Pay!

Posted on October 3th, 2007 (1 Comments)

Want to buy superstar British rock band Radiohead’s latest CD “In Rainbows”? Just download it from the band’s website and when you get to the checkout page, simply pay whatever price you want. Seriously! When it comes to price, the band literally says “It’s up to you.” An interesting pricing strategy don’t you think?

Just to be clear, the “pay what you want” pricing strategy is currently used by other entities. For example, we all are familiar with the fundraising drives held by the Public Broadcasting Service (PBS) and National Public Radio (NPR). These media companies are using a “pay what you want” pricing model. In a similar vein, tipping at U.S. restaurants is in essence “pay what you want.” In contrast, European restaurants tack on a mandatory service charge.

While this pricing strategy is novel to the music industry, in reality Radiohead is taking little risk. In fact, this strategy could be extremely profitable for the following reasons:

  1. Had their music been sold on digital music sites like iTunes, Radiohead would make at most a 25% royalty. Thus, the band nets $2.50 on a $10 retail download. By eliminating middlemen (music companies, retailers), Radiohead can reap high profits even accounting for the occasional cheapskate that stiffs the band.
  1. A poll by United Kingdom music magazine NME found the average fan would pay $10 for the download – thus resulting in much higher profits relative to if the music was sold through music companies/retailers.
  1. The fact that music fans can pay what they want enables Radiohead to expand its fan base. Someone that decides to pay $4 may not have otherwise bought the CD – they can be converted into a fan. For example, in 1982 a friend made me a Jimmy Buffett cassette tape. Today, Mr. Buffett is literally up tens of thousands of dollars (CDs, concerts, etc.) from me courtesy of this low cost introduction!
  1. Radiohead has plenty of opportunities to further profit. The band plans to sell the CD version in retail stores as well as an $81 “chef’s table” box set. The downloading process also hopefully starts a profitable relationship with fans through the band’s web site. And finally, don’t forget the big money comes from the concert tour.

While Radiohead’s pricing strategy is making headlines, I think the real story is the start of a trend for well-known musicians, writers, and even television shows to shun traditional media companies in favor of self publishing/distributing their work. Radiohead is proving that it doesn’t need a major music label to succeed. Does John Grisham really need to be published by Random House? Couldn’t HBO’s “Entourage” or “The Sopranos” shows be distributed on the Internet? This could be the start of the self publish/distribute nightmare scenario that media companies have long feared.

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Readers' Comments on This Blog Entry

From Jon Manning on October 3th, 2007
Meanwhile, over at the Wired Magazine blog, they're reporting that so far, fans are paying close to retail price for the new Radiohead album