two things to know before deciding what to pay for the new Radiohead album

Posted on by Luis Villa

Radiohead is experimenting with allowing you to pay whatever you want for the new Radiohead album, apparently on the theory that you’ll download it anyway, of which they get zero, or buy a CD from a label, of which they get very little.

My friend Iain waiting patiently for a Radiohead concert a long time ago in a place far away. (Image courtesy Nat.)

I thought it might be useful to add two facts for those trying to figure out what to pay for this.

First, what you’ve actually given to Radiohead (as opposed to the distributors) for past albums.

Terry Fisher’s stimulating Promises To Keep has a useful appendix1 discussing what goes where when you buy a CD. Bottom line from Table A.3, p. 262: on average, 12% of the money when you buy a CD goes to the artist; another 4% to the composer. Of course, these numbers are approximate, and averages: some marketing money and other expenses are then taken back from the artists, CDs sold in Canada are even worse (the distributor gets a much larger share), and some megastars get higher numbers in their contracts. But 16% is a good ballpark figure for the percentage of a CD purchase that goes to the composer-musician, which means if you paid $14 for the last few Radiohead albums2 Radiohead actually saw about $2.24 of your $14.

Secondly, the actual costs of the album.

The majority of costs of traditional CD sales go to various overheads- distribution, marketing, etc. So far, Radiohead has done no marketing for this album, except the website. For the digital product, the distribution costs are very, very low. Assuming they use very high quality mp3 files (call it 1/4 gig), and going from the prices charged by Amazon’s S3 service for bandwidth, Radiohead’s cost for distribution will be a little less than five cents.

Combine these two numbers and you get a price floor of about $2.30– if you pay that much for the digital downloads, Radiohead is probably seeing exactly as much money from you for this album as they will have seen from previous albums. Obviously, this is just a ballpark figure, but it is in the right range. Drop below that, and you’ve basically taken advantage of their experiment.

I personally have decided to split the difference with Radiohead; of the $11.70 that is no longer going to marketing, distribution, etc., half will stay in my pocket, and the other half will go to the band (on top of the base $2.30). I’m doing this partially because they were probably hosed by the labels in the past, partially because I want to encourage this kind of experimentation in the music industry3, and partially, frankly, as a bonus for being very good musicians- I like the idea of compensating good artists more than bad artists, instead of having admitted price-fixers set roughly uniform prices across the industry.

But yeah, bottom line: if you give Radiohead three bucks, you can probably safely sleep pretty easy at night that you’re not helping them starve. And if you give more, well, you’ve supported some economically innovative artists. Congratulations.

(And to Berkman folks still reading this blog: yes, this would be a good time for Terry to put out a press release pushing his own thinking in this area ;)

  1. Google Books link. If it doesn’t work, search for “promises to keep appendix: where does the money go” in google books. [↩]
  2. $14 is the average price of their last album from the six stores google lists as selling it [↩]
  3. 16% going to artists means 84% is going to things other than the art itself, which is insane in an age where the marginal cost of distribution approaches zero, and where word of mouth, sometimes computer assisted, like MySpace, is both free and the dominant form of marketing. [↩]

Published by Luis Villa

55 thoughts on “two things to know before deciding what to pay for the new Radiohead album”

  2. Sony BMG’s chief anti-piracy lawyer: “Copying” music you own is “stealing” Um … doesn’t Sony make MP3 players?jvoicebridge This looks pretty cool – an open source conference bridge and SIP phone written in Java.Two things to know before deciding what to pay for the new Radiohead albumVery useful analysis by Luis provides the context I need to know what a fair price for the album might be. Assuming it’s a DRM-free format.Open Docs Update: Original list done, working on the next batch

  3. unknownwrote an interesting post today on three things you should know before deciding what to pay for the … Here’s a quick excerpt Radiohead is experimenting with allowing you to pay whatever you want for the new Radiohead album, apparently on the theory

  4. Sony BMG’s chief anti-piracy lawyer: “Copying” music you own is “stealing” Um … doesn’t Sony make MP3 players?jvoicebridge This looks pretty cool – an open source conference bridge and SIP phone written in Java.Two things to know before deciding what to pay for the new Radiohead albumVery useful analysis by Luis provides the context I need to know what a fair price for the album might be. Assuming it’s a DRM-free format.Open Docs Update: Original list done, working on the next batch

  5. are similar to the sentiments in “Motion Picture Soundtrack,” the closing track of Kid A. While the latter is a better song, “Videotape” is not 7 minutes long. Further Reading Luis Villa’s analysis ofwhat a reasonable price to pay for the download is. Pitchfork’s synopsis of a Gothamist interview with Radiohead guitarist Jonny Greenwood. A NYTimes editorial suggesting reasons why fans are actually paying for the download, as opposed to choosing 0 pounds at checkout.

  6. ayment system similar to (but expect something … Comment on Yahoo Publisher Network Offering PayPal Payments by … – Hello, your website is very informative and useful, I would like to share with you links, send all the questions on my e-mail.three things you should know before deciding what to pay for the …– Radiohead is experimenting with allowing you to pay whatever you want for the new Radiohead album, apparently on the theory that you’ll download it anyway, of which they get zero, or buy a CD from a label, of which they get very little. … Google&#8

  7. While the trick will work 2-3 times and that gesture will market itself, the rest of the artists that will try the same thing won’t get the same attention (even if they might be big names). And that’s why you pay the labels anyway: for PR and marketing. Sure they take a large chunk of the money, but what they do is not useless.

  10. […] Outubro 2nd, 2007 · No Comments Mal anunciaram a data de lançamento e já vai sair o tão esperado novo álbum do Radiohead. A grande novidade é que ele vai poder ser comprado no formato MP3 (além da caixa com discos), direto do site da banda. O preço? Você decide. Já que você ia baixar ilegalmente de qualquer jeito, eles estão vendendo pelo preço que você acha justo. […]

  12. I see where you’re coming from, but it seems you forgot some other legitimate costs, e.g. the cost of the studio time they had to pay for to record the album. That’s a reasonable cost if you’re having to spend a lot of time in the studio.

  13. Don’t forget that the artist has to pay for the producer, the engineer, the recording studio, catering, and stuff like that. That comes out of the $2.30. Your appendix gave a wholesale price of $10. I’d knock off $4.00 from that for saved marketing, distribution, and manufacturing costs, for $6.00. I’m not a fan, but for 6 bucks, I might give this album a try.

    But if I only have to pay $6.00, maybe it isn’t worth it.

  14. Dan, Davyd: the artist already pays for all of that out of their share in most record deals, so either way it comes out of that 16%/@2.30. That’s why I didn’t mention it.

  15. That’s a stupid metric.

    What’s wrong with paying Radiohead exactly what the new album would have cost in the store, so that they a) pocket the spread, and b) their label gets nothing?

    They are a very talented band with a lot of heart, and if this move on their part is successful, other bands might opt for the same move – to self publish and cut out interference from the middleman, which affects much more than just the monetary issues associated with distribution (censorship etc).

  16. This is a great idea, but Radiohead is already an established act, and in a sense are still reaping the rewards of promotion invested in the past. New bands will not be able to play this game from the outset.

  17. GP, Radiohead don’t have a label any more. Their contract with EMI ended after the last album (Hail to the Thief).

    Luis, remember that at least some of that 84% goes to supporting acts who are never commercially successful. There’s plenty of good records made that never make enough money to cover their advance. I’m hoping Radiohead will do something about using the proceeds of this move to fund the release of pieces by less well-known artists through their own label or something.

  19. It’s an interesting analysis but I’m not sure that working out what to do based on the economics of the old model isn’t missing the point somehow.

    Rather you should just pay what you feel it is worth.

    Paying extra to “support the idea” won’t really help because you aren’t going to do it every time. If the model is to be a successful one then the model will have to prove itself in the cold light of day.

    I certainly hope it does succeed. People will always listen to music and I think the money spent on “promotion” is largely a waste as bands are mostly just competing with other bands.

    If this model can take away a lot of the power of the majors then maybe artists can compete for attention with talent rather than buckets of money.

  21. In Spain, at least, that 12% for the artist usually decrease to 5-4% if the CD is sold under “active promotion campaign” from the label/distributor, that is insane.

    About the $2.30 mininum price, I wonder how much of that would be charged to Radiohead by the bank/online-payment-system/credit card issuer.

    Anyway, I want a nice collection of “buy this album” banners :)

  22. Adam W.: actually, very little of that goes to supporting new artists; new artists get hosed just like old artists do (they have to pay their own recording and marketing costs against the advance, etc.) I strongly recommend reading all of Promises to Keep to understand the system better.

    I do agree that Radiohead can obviously get away with this easier because they are famous, but I’m not so sure that it isn’t better for most small acts to also go the indy route- it will be harder for them to build up a huge splash, but at the same time, they’ll be more likely to actually profit from the work they do do instead of going deeply into debt.

    Fer: “I wonder how much of that would be charged to Radiohead by the bank/online-payment-system/credit card issuer.” They add on a ~$1 surcharge for that after you’ve decided how much to pay.

  23. One problem with current “pre-order” for Radiohead new album is on which format will it available. It isn’t explained on their website and it is still possible they release it as WMA with DRM :(

  24. Personally, I think one should always err on giving too much. I gave $20 and still feel like I was cheap. While most of the music world is probably worth the bare minimum of $2.30, if that, Radiohead deserves more. I actually want them to be rich. They deserve more cash than I can give them (without my wife getting angry at me :-). This is the same reason I throw money at Arsenal – some things in life are worth overpaying for, while others aren’t worth paying anything for.

  26. Matt, Paul: sure, I’m just trying to explain what the minimum price point is that people already understand to be ‘fair’. Obviously, if you thought $14 to them was too low, or way too high, then YMMV as to what the minimum fair price is.

    But for most people, something above $2.30 is going to be a fair price- in the past, you’ve consented to pay $14/album for music, and they’ve consented to make albums for $2.30/album, so anything in between those two prices is going to be an improvement on the status quo for both parties.

  27. @ thoses who believe that this new way to get money won’t be efficient to small bands, because they’ll lack ambitious marketing.

    You shouldn’t forget about the power of social networks, when it comes to spread the word. If this economic model is meant to survive, it will be in cooperation with social network websites centered on the concept of sharing music.

    I really want this to succeed, because it will make easier to fight the “intellectual property” lie, and because the bands’ success will be more determined by what people actually like, rather than what the industry think it’s commercial enough.

    Sorry for my English, I hate writing in English.

  29. It’s this debate and dialogue that is the most interesting part of the story… there’s not an easy answer, and seeing how everything comes together (or falls apart) by what Radiohead is attempting is fascinating, at the very least.

    We dropped our $0.02 in the conversation at our music licensing blog… come and by and say hi!

  31. And FWIW Radiohead don’t have to pay for studio time as they have their own studio to work in. Most large bands do.

  32. Iain: still a capital cost, though, that presumably they intend to recoup through album sales. Either way, though, it comes out of that 16% at some point.

  34. Thinking more about this (sorry for spamming your blog luis) – The way Radiohead have set it up, its like a magic box…how much do you want to pay for what is inside the magic box? It might be a gold bar, it might be a rusty nail….pay your money, take your chance. It might be a DRM encoded proprietry sound format of static, it might be a flac of music worthy to stand alongside [insert favourite Radiohead song here].

    If this system is to work then there *needs* to be the option to see before you buy, because otherwise, how are you going to know how much XYZ is worth to you? Also copying the allofmp3 model of allowing you whatever format you want might be nice trick as well.

    I gave £5.32 ($11), which is about the price you pay for an unsigned bands CD at a concert. Its still a lot less than the £12 ($24) that you’d pay for an album in the shops.

  35. @ iain… um, yeah, don’t think that the studio they enjoy (“as most large bands do”) is anywhere near free. :) Granted, maybe not millions of dollars… but even if it were, it would have been paid for by the previous business model they were operating under.

  38. […] Luis Villa’s Blog / two things to know before deciding what to pay for the new Radiohead album similar models have been tried before in the past, most notably by Stephen King with his “Plant” serialized novel, and failed. i’ll be interested to see how Radiohead fares. i suspect, however, that sans the oversight of peers most will go cheap. (tags: radiohead economics model music luisvilla) […]

  45. […] vous ne savez pas combien donner sachez qu’après approximatif calcul ils gagnent environ $2.14 par album normalement commercialisé, ajoutez-y $0.5 de prix de bande […]

  50. Well, I paid about 6 pounds, so, I guess I paid a little above average.

    Butit is important, I think, to focus on the competition for artists from these two very different business models.

    That competition occurs in many dimensions, one of them being price. Other things that artists are likely to value are independence and lack of interference in the artistic process that comes with that.

    So, if the “In rainbows” model is anywhere close to competitive on the price front, artists will gravitate to it for the other benefits the model confers.

    I am sure that someone will list the benefits of being under contract with a major label, and I would be very interested in seeing those, but, unless I am overlooking something, we are witnessing an example of creative destruction….

    & the big four labels are…toast…

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