[UPDATE: the early reports are in from the band and external sources. Estimates put the average price paid at $5-$8, which largely agrees with the informal survey here. Approximately 1.2 million people downloaded the album from the site and at least another 500,000 got it for free from BitTorrent. The PR value of the excercise: priceless.]
First Prince, and now Radiohead decide that they can't wait for the music industry to innovate its way out of the current mess. From an economics perspective, Radiohead's experiment with the set-your-own price model is fascinating. What do you think the average price that people choose to pay for the digital download of "In Rainbows" will be? (answers in comments, please, ideally with a sentence about why you guessed what you did)
A) Less than $5
B) Between $5 and $10
C) More than $10
(There have been several reports that you have to pay at least 1p with a 45p credit card transaction charge, so the minimum price will effectively be 46p, or $0.93. However, I just tried it and it accepted $0.00. So let's assume that free is indeed an option.)
Note: this has been done several times before, although never with as high-profile a band. A Canadian artist named Jane Siberry even shares the statistics from her experiment (right of page, scroll down), although note the important difference that she lists a "suggested price". Street performers also let people set their own "price", as do many museums, although they too tend to list a "suggested price".
Regardless of what the average consumer decides to pay, this is another example of a business model enabled by FREE. They only way Radiohead can enter into this with no idea of what people will pay is because they have a product whose marginal cost of manufacturing and distribution is close to zero.
In this case, I suspect that the attention that Radiohead is getting for this stunt will ensure that it does far better, between direct music sales and concert attendance, than it would have otherwise, so the opportunity costs are probably negative.
The Charlatans, for instance, are following Prince's model and making their next album a free download. Their manager explains:
McGee said the band "could not lose" from the revolutionary approach. "We looked at the deal we were being offered by Sanctuary and said, 'Let's just do it ourselves'. We increase our fan base, we sell more merchandise, more fans talk about the band and we get more advertising and more films (soundtracks). More people will get into the the Charlatans and will probably pay the money to see the show. I presume it will double the gig traffic, maybe even treble it." He put the suggestion to the band's singer, Tim Burgess, who immediately agreed, and the rest of the band were subsequently persuaded to go along with the plan. Burgess said: "CD sales are on the decline and for any one copy sold there are nine copied from that. The future is in playing live." The Charlatans have a November tour lined up to coincide with the release.
BTW, Radiohead is also selling a physical boxed set, which contains the new album on CD and on two 12" heavyweight vinyl records, along with a second enhanced CD containing more new songs, digital photographs and artwork. The set also includes lyric booklets and all are encased in a hardback book and slipcase. It's £40 ($80). Some information wants to be free, some wants to be really expensive.