Radiohead Economics - Part Two

A few months ago I wrote an article entitled “Radiohead Economics” which, in essence, applauded Radiohead for their vision, not as rebellious rockers bringing down the system with their pay-what-you-want release of In Rainbows, but for their creation of a business model which could serve to make up for slow record sales. Most of the article dealt with theory and the fact that Radiohead were circumventing the usual system and allowing the increased demand for music to fall more into line with supply while continuing to make money, but little actual evidence was available to uphold my conclusions.

Now, however, enough numbers are in that we can truly match up the theory with the reality. According to Mashable.com, Radiohead saw 1.2 million ‘free’ downloads of In Rainbows during the time it was up on the band’s website and freely accessible in its first week. The ‘free’ download of the album, which many bemoaned as an end to the record industry and disastrous to profits, actually resulted in an average of $8 (other reports have the number at $6 through Nov. 6th) being spent on each downloaded album. That is only slightly less than the amount that the album would most likely have sold for in stores; and one must also consider that by circumventing packaging costs, shipping, and other fees, the amount of money made on each album is most likely nearly equal to the selling price. This led to a total of $9.6 of revenue (if the Mashable.com numbers are correct). With very little in the way of cost cropping up other than the recording of the album, it is almost assured that Radiohead made more off of the ‘free’ release of In Rainbows than most of their proper album releases.

Furthermore, In Rainbows is now also available for purchase in most retail stores as a proper CD release. It went straight to number one, selling 122,000 physical units in a traditionally very slow time period for CD sales (yahoo.com) in its first week. Hail to the Thief, by contrast, sold around 300,000 units in its first week on its way to selling around a million copies. Radiohead will most likely not sell a million physical units of In Rainbows, but the amount of CDs sold, although roughly half of what they sold on their last album, is not as large of a gap as it seems as the industry on the whole has declined rapidly since Thief and the physical release of In Rainbows was preceded by very little to no advertising or publicity on the band or their label’s part.

In the end, if these numbers can be trusted, Radiohead will generate more revenues from In Rainbows than any other album they have produced and more than most of their albums combined. Total profits will also be significantly higher due to the low cost revenue generated by the ‘free’ release, resulting in a win/win situation in which Radiohead and the general public both benefit from a market in which users have set their own price.

Again, though, this is not a model that will work for most artists, but bands with Radiohead’s stature can certainly benefit from copying what Thom Yorke and company have been up to.

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