38% of Downloaders Paid For Radiohead Album

brajesh sends us to Comscore for a followup on the earlier discussion of Radiohead making $6-$10 million on their name-your-own-cost album "In Rainbows" — with the average price paid being between $5 and $8. Comscore analyzes the numbers: "During the first 29 days of October, 1.2 million people worldwide visited the 'In Rainbows' site, with a significant percentage of visitors ultimately downloading the album. The study showed that 38 percent of global downloaders of the album willingly paid to do so, with the remaining 62 percent choosing to pay nothing... Of those who were willing to pay, the largest percentage (17 percent) paid less than $4. However, a significant percentage (12 percent) were willing to pay between $8-$12, or approximately the cost to download a typical album via iTunes, and these consumers accounted for more than half (52 percent) of all sales in dollars."

So the big question is...

did they make more or less profit than what they would have made with the standard sales method?

Re:So the big question is...

I would imagine they only get 1-2 dollars per CD from a label so probably a lot more.

Re:So the big question is...

Here, check my math:
38% of 1.2 million people pay $6 = $2.736 million.

According to this article http://www.billboard.com/bbcom/search/google/article_display.jsp?vnu_content_id=1001017730 [billboard.com], their last album sold over 900,000 copies in the US alone, so let's guess they did 1.5 million (which would be a pretty poor showing, internationally). At $2/album from the major that means that they'd get $3 million.

So depending on whether the download cannibalized their CD sales this time around, they might come out slightly ahead.

Re:Only in gross

"In this scenario, they're responsible for all the marketing, recording, and distribution costs. In the scenario where they're getting $2/album they don't have to foot any of those bills."

Huh? Typical music contacts often give you a set amount of money for a record and then X$ per CD, they then charge you for marketing, recording and distribution. so often an artist will come out ahead only if they sell X number of CDs to make up for those charges.

Re:Only in gross

In this scenario, they're responsible for all the marketing, recording, and distribution costs. In the scenario where they're getting $2/album they don't have to foot any of those bills.

Nope. Many of those bills are recouped out of artist royalties. Marketing is usually split, often 50/50, recording is almost always 100% recoupable as are all other production costs (artwork, travel expenses, the time of the label personnel that were involved -- and some that weren't, etc.) and distribution costs are taken off the top before artist royalties are calculated. Distribution costs are also artificially boosted in various ways, to minimize the artist royalty.

My favorite technique is "breakage". See, back in the day of shellac records (before vinyl!), records were very fragile and lots of them got broken during shipment. Rather than address the complexity and fraud opportunities of getting retailers to report how many records arrived broken, the labels just offered to take 10% (IIRC) off the top for "breakage". This discount was also applied when calculating artist royalties, obviously. When vinyl was introduced, this structure was retained, even though breakage almost completely disappeared. When 8-track tapes, cassette tapes and then CDs came on the market breakage simply didn't happen any more, but the structure was retained. Along the way, the labels renegotiated their contracts with retailers and removed the breakage discount on the -- quite reasonable -- grounds that it didn't happen any more and when it did the shippers were responsible. However, they *still* apply the breakage discount to artist royalties. Nice, huh?

Re:Only in gross

The ever classic article from Courtney Love goes over the whole scheme:

http://archive.salon.com/tech/feature/2000/06/14/love/ [salon.com]

Re:Only in gross

When vinyl was introduced, this structure was retained, even though breakage almost completely disappeared

Whoa; Completely wrong.

Did they 'break' when they were vinyl? No. BUT, I worked for major chains, pal, and the automatic returns system (accounting) was valid because an enormous number of records ended up as returns. You have no idea what you're talking about. Big stores usually had staff whose sole purpose was to validate returns. The main cause of the returns? Warpage. And the reason for that? Two things: Thinner LPs, with less actual vinyl, and the killer cause: The major labels never veered away from tight 'shrink-wrapping', which, in combination with the standard 60 LPs to a box in trucks with higher heat... equaled Warp City.

On big number pressings, where sales were easily predicted at hundreds of thousands of units, the returns could hit 15-20% easily in Southern California, which makes the notion, that the "10% breakage" policy was an unnecessary artifact from the past, all the way wrong.

I worked, briefly, all over Southern Cali, for WEA, doing Inventory, and part of it was dealing with returns. Did the labels mitigate some of the loss as part of overall contract strategy? Sure. But a mitigated LOSS, is still a LOSS. And trust me, when we shipped X number of units we wanted wholsale times X back. Nobody wanted to lose shit, mitigated or not. That's Business 101. Nice paranoid try, though.

Sorry if I sound harsh. But I hate the way the labels have treated artists and the fans. I always have. But we can expose these people, and their methods by stating the facts and telling the truth. It's not valid to get the facts wrong in pursuit of any 'point' one is trying to make. I hated the 'returns' thing, back in the day, because it was simply more evidence of the cheap-assed cynical methods that were being employed and 'perfected' before, during and after my stint in that part of the biz, before I went back to 'just' being a working, touring musician.

Re:Only in gross

But they saved on lawyers fees because they didn't try to chase down housewives and drag them through lengthy legal battles.

Not to mention probably the best PR money can buy.

Let's hope this raises the bar.

 

Re:So the big question is...

Why would you? It's in a zip file. Let's stop trying to justify this. Over 60% were given the opportunity to pay for the music, at any price, and didn't. That puts the lie to the "oh, it's overcharged" argument. There's always lots of talk about "greedy corporations" here, but let's face it. Slashdotters are willing to take without compensating their favorite artists without blinking an eye. That's greed.

Re:So the big question is...

did they make more or less profit than what they would have made with the standard sales method?

Standard sales method:(per $)
$.53 to record company
$.27 to record execs' Mercedes fund
$.18 to record execs' cigar fund
$.02 to Radiohead.

New distribution method:(per $)
$.01 to bandwidth costs
$.99 to Radiohead

meah I made that all up.

Re:So the big question is...

I mean, it might be the best way for RADIOHEAD to distribute their album, since they're already rich and can front the capital to self-distribute. They also got a ton of free publicity due to the novel business model. They also had a ton of existing fans who were waiting for this.

But if you're the next great band, and no one knows who you are, you might want the label to push your product for you, while you focus on just making the music and touring.

If it were really that simple, everyone would be doing it.

Re:So the big question is...

Then it sounds like a band would want to hire a promoter. I don't see why a band should need to sign over their copyrights and/or lock themselves into a 10-year contract just to get some promotion services. It would make more sense to just hire a promotion company who works for a fixed cut of the proceeds, like the band's manager most likely does.

Traditionally, a record label's value-add was as a gatekeeper with access to the cartel-like retail channels. Those channels are rapidly diminishing in importance as the world moves towards downloaded music. Artists won't have nearly as much reason to sign away all of their control just to be able to access the market.

Re:So the big question is...

Actually, record companies advance the band up front, which isn't quite the same as paying them. The advance is paid out of the royalties of the album sales, so in essence, the record company is just giving them a loan. The record companies try to recoup 100% of all expenses out of royalties; this includes music videos, tours, production costs, many forms of advertising, and more. Even the band's producer is paid by the band out of a 100% recouped advance. About the only things that aren't 100% recoupable are actual pressing costs and distribution. Music publishing, you see, has very little to do with most other forms of publishing.

I recommend Donald Passman's "All You Need To Know About the Music Business" for a good overview of what record companies actually do, what the average royalties per CD sold actually are, and how recoupable advances can drive popular bands into bankruptcy. You'll discover all sorts of fun tidbits, like the 20% breakage fee on royalties (a holdover from the days of vinyl that bands are stuck with now). No, I'm not shilling -- I've read it, and it's quite enlightening.

To get back to the overriding question, the answer is almost assuredly yes. Radiohead most likely made more money off the download sales than they would have off a physical CD sale, since their royalties per CD are likely less than $3.

Re:So the big question is...

Its not just retail channels. Its MONEY. Producing an Album Costs MONEY. Lots of it.

Back in the days of monster sound boards, specialized recording equipment, a special sound-tight room and all that crap, sure.

Nowadays a somewhat-pro sound guy with a used Macintosh, the right software, and a small sound board, could do the whole shebang in a room lined with the appropriate sound-deadening material. Like a spare bedroom rigged for just that purpose.

It's not too hard to rig up, and the biggest expenses would be the Mac and the software that runs on it. An enterprising guy could set aside some dough and time to set up his own in-home shop, producing a very decent product in the meanwhile.

Or you could just check into a local studio, where the prices would be hella reasonable compared to some Sony/EMI/Whoever-owned studio.

Marketing isn't this big cloudy mystery that most people peg it as. Get playtime and interviews on the local radio station (in many larger cities, yes they do exist and thrive, and are not owned by ClearChannel). Do charity gigs. Pass word around online through donated royalty-free play on streaming Internet radio*. Pass around (or hire some kids to pass around) some CD's at the local high school. Do free podcasts. Hire a local web marketer and a local promoter to get your name out. Open for semi-bigger acts when they come to town. Play at the local "Big Ass" music festival (Salt Lake City, Utah had one yearly with that name).

I just described what many of the 50's, 60's and 70's bands did to get their names out, before the RIAA put a stranglehold on it all.

If you're good and not too un-lucky, word gets out and you get better recognition. Sure, it takes a bit longer than the synthetic "stars" that an RIAA house will shovel out, but you have more fun in the long-run and you won't end up being sucked dry in the process.

/P

* Streaming radio? Hell yes! I've discovered more good, solid bands that way in the past four years, than through any other means.

But wait, there's more

Record companies often SCREW the bands on contract.

Dude, producers, sound engineers, and all those folks don't all work for the record companies.

Front money? How many record company contracts have you seen? And how much does a record company actually advance on royalties for anyone but a superstar?

Marketing: yes, that's true. Of course, it's less true now than it was fifteen years ago. Fifteen years ago, there were record stores, and people actually listened to the radio. Well, they killed [nytimes.com] record stores, and nobody listens to music on the radio anymore anyway.

Record companies are only now getting into the tour bus business, because that's the only part of the industry making money. That is not traditionally what record companies do. That's what band managers do, and for most recording artists, that's still what managers do.

Top-of-the-line instruments? Dude, you mean like Nikes and stuff?

So, no, I say your understanding of the music industry clashes with mine. But you do point the way forward: out of the hands of old "CD and lawsuit" companies and into the control of groups and individuals (within the current record companies, or outside them) with influence on the market as it currently is. And, with the internet, it currently is more segmented and more regional than it's been in a long time. Radio DJs are all but irrelevant; MTV? When was the last time they showed music? And yet the record companies still insist on making $2M videos? The current arbiters of music fashion and taste are those people who've been supporting recorded music since its advent, but have never been under the control of the music industry: your buddy who makes the mix tape, the club DJ, your little hoodrat friend who's been "saving it for the scene". The "industry leading" recording studios aren't worth it for most musicians: they can get a "good enough" job done in someone's house in the Meadowlands. The "music people" and their cocaine only harmed Rock-n-Roll to begin with.

So no, the Reagan 80s were not a glory period for music. As the saying goes, I survived the 80s one time already...

Re:So the big question is...

They can make posters, promote with other cross channel media in order to educate the public about the product.

"Educate the public?!"

Bah.

You'd think that people didn't have a natural NEED or DRIVE to CONSUME, PERFORM and SHARE music. The record industry corrupts commercial radio with payola, flogs the same cruddy musicians with posters for years on end, sues Internet radio stations, sues online guitar tablature sites like Olga out of existence, sits on copyrights until the recordings are historical, installs rootkits on our PCs, and they charge everyone money for playing or performing any recordings.

If the music industry put 1/10 of the effort that the film industry put into promotion, I don't think we'd have a problem.

Top ways that new music has reached me since 1994:

1. Piracy
2. My local pub
3. College Radio
4. Word of mouth
5. The film industry

Aside from getting an album on a shelf in a CD store, they do NOTHING to promote music. In fact, they couldn't do more to repress music if they tried.

Down with commercial radio, and down with the record industry.

Re:Which leads to a bigger question

Do you really think people will continue to pay $10 for something they can get for nothing? Neither do I. In the end, this incident is a gimmick with no sustainability.

When you go out to dinner how much do you tip? 15%? 20%? Why pay that when you can get it for nothing? Is it out of guilt? For future service? Either of those motives work well enough in this case. And unlike the waiter they don't need everybody to do it. Just a reasonable portion.

Comparing it to current sales and profits is not very meaningful. The industry is changing, and so is the profit model.

You are still missing something

These payments are anonymous. Tipping is not. I bet a lot of people wouldn't tip if they could do it without showing their face...and then, of course, restaurants would finally move away from our stupid tipping system itself.

In anonymous situations, many people are jerks. How often does someone cut you off when driving? How often does someone barge in front of you in a line at a store or restaurant. What is the difference? Anonimity.

Unfair to music company execs.

I really don't think it's fair that Radiohead is just giving it away over the internet... Record companies put in a lot of hard work and effort to make a band successful, and I think it's really dishonest to just cut them out like that.

Perhaps its time the government did something about it, before the record industry starts losing even more revenue and therefore jobs.

Got radio head?

Got radio head?
Listen, Fred:
RF containment
Could leave you dead
Drop the insulation
And broadcast, instead.
Burma Shave

One thing they didn't account for

One thing this didn't account for was advertising. A band that big probably had a huge advertising budget in their past that they no longer had to worry about because being the first ones out of the block, they caught a bit more press on the Internet. There were probably a number of new radiohead fans that were made because of this that will come back and buy future CDs. They might have taken a hit financially, but I think the payoff is going to be bigger in the long run.

Re:One thing they didn't account for

Actually you raise a good point on the advertising costs. If they did not spend much in terms of advertising, then their costs would be lower and it's possible that they ended up with similar or even more profits. Having an already established name would help, of course, along with the free publicity, but hey, that's savvy too. But yeah, no idea how that actually played out.

it worked

at 6-10 mil this experiment work. Radiohead made more in album sales via download than they have on other albums. Plus this does not included what they will make in storefront sales.

Re:it worked

the real question as to whether "it worked" is how many of those bands have made it big.

The reality of music in the Internet age will be that hardly any bands "make it big", but lots of bands make a living.

The question being

How many of those were people who downloaded it, gave it a listen and then went back and paid for it after they decided it was worth some cash.

A lot better than software

I am the developer of a quite succesful shareware program. The program can be downloaded for free AND without limitations or nag screen. Nothing. It just works and the users would pay if they want. The "official" price is 25 USD. Counting the the "phoning home" update feature unique hits and the money that came in, I calculate that only a 10-12% of the user pays for the program.

Well, of course, it culd be that not all the users are keeping the program, they may be testing, etc... but I am counting the hits that the server register from the same address within a month... So the program has being used a month more or less....

So judging by that, music consumers have a more happy pocket than software users.

Another possibility

Either that, or many people wanted to use this opportunity to make a point against the recording labels, and the results would be different if this became a standard practice.

For some reason, I'm inclined towards the latter.

what idiot wrote this?

the largest percentage (17 percent) paid less than $4

If you are arbitrarily defining the range paid, it is completely meaningless to say "the largest percentage."

For example, if I divide it in to two groups: those who paid less than $4 and those that paid more than $4, you could say that the largest percentage (83 percent) paid MORE than $4.

Lies, damn lies.... and terrible journalism.

yes, and.....

...And with all the free publicity, EMI (their old label) has decided to cash in-- selling their back catalog on a USB drive that retails for TWICE what the CD box set costs.

That pretty much explains the music "industry" in a nutshell.

go to drudgereport.com right now

drudgereport.com [drudgereport.com] is a right-leaning website frequented by media execs

you see the very first story linked as:

"Most Fans Paid $0 for Radiohead Album..." [breitbart.com]

(breitbart is a right-leaning media outlet as well)

ps: right now being 4:15 pm, 11/06/2007

what's funny is how a pro-file sharing website, like slashdot, can spin a positive out of the numbers, and an anti-file sharing website can spin a negative

spin, spin, spin

just my two cents: radiohead probably made more money off their album with this internet tip jar concept than if they signed with a label, considering how the companies nickel and dime artists to death. actually, radiohead has some clout, so maybe that's not 100% true. but rather, an unknown band would DEFINITELY make more money with free albums and an internet tip jar than signing with a label

hopefully more and more bands will realize this, and a critical mass of hot young bands will coalesce such that one will consider doing business with the defunct music labels ever again

then the RIAA attack dogs will sue up and coming artists to sign with the music labels? (half-joking, i wouldn't put it past them)

Re:go to drudgereport.com right now

If you want to look at the numbers without spin, it's simple: Radiohead pulled in 6-10 million bucks.

That's the bottom line, that's the number that matters, and without any spin it's clear that this is a good, positive number.

More data needed.

We'll only really know the full impact of this if/when other acts start doing it. I don't really like Radiohead, but I threw them $5 just for shaking things up in a good way. Still, it's obvious most people who bought this album were Radiohead fans. The real question is, how much further will this distribution model go if/when other major fanbases are given the same chance?

No surprises

So things went pretty much as you'd have expected from reading the comments on a typical RIAA / music / copright story on Slashdot, six or seven years ago - say, when Napster happened. Back then, those of us who that a band could give away their material, and if they were any good, some significant fraction of the audience would willingly pay for it --enough to make it a viable approach -- were seen as loony swivel-eyed furry-toothed freetards, if I remember correctly.

Hmmmm.

Three cheers for Radiohead, at any rate.

Something to consider

Of those who did not pay anything, how many would have purchased the album if it had not been available for free download? Between that, and the minimal compensation from a standard record contract I'd call this endeavor a success. I also think that if this model took off there might be more of a social push to encourge cheapskates to support the bands they listen to.

These numbers are meaningless

You can spin the numbers any way you want...

17% paid less than $4? Well, that means that of the 38% that paid, 21% paid more than $4. What does $4 have to do with anything at all? It is a completely arbitrary number.

The numbers that would be important are:
Of the 62% who paid nothing, how many of them would have bought the disc at retail at launch?
Of the 38% who paid something, how many of them would have bought the disc at retail at launch? How much more / less did they pay than if they bought it at retail?

Not to mention that they will still sell physical CDs, which they stand to make more money off of.

15% after recoupment is better than average

A lucky band might get a deal whereby they are paid 15% of revenues *after the record label recoups it investment*. Costs to be recouped can include nearly anything: secretaries, fat cat lunches, photography and printing costs, air conditioning, parking, coffee. You name it. Perhaps most importantly, the label has to shell out a pretty hefty percentage of revenues to the distributors and manufacturers whether they be a disc manufacturer or iTunes.

My band had a record distributed through V2 records and I believe our tiny label was *supposed* to get paid about $2 per record. Despite selling a few thousand records, we never got paid a dime because they claimed they didn't recoup the cost of their sales department selling our record to Target, Best Buy, etc.

I'll admit my band isn't as popular as radiohead, but let's do a little arithmetic. Suppose radiohead sells 1 million copies of their record at $20 a pop. That's $20 million dollars. Let's further suppose they get an extremely generous (nay unheard-of!) deal whereby they're paid 20% of gross after the label recoups their 'investments'. Let's suppose they get an amazing distribution deal that only siphons off 10% of gross revenues. Hell let's go crazy and assume that the record label doesn't expect to recoup anything and pays radiohead their percentage from the first record sold.

20% of $20 million is $4 million

take 10% of that and give it to iTunes and that leaves $3.6 million dollars

I'd bet my right arm that radiohead have made out like bandits on this.

For some interesting reading on the crooked record business, I would suggest Donald Passman's book All You Need to Know About the Music Business [amazon.com]

Re:15% after recoupment is better than average

My band had a record distributed through V2 records and I believe our tiny label was *supposed* to get paid about $2 per record. Despite selling a few thousand records, we never got paid a dime because they claimed they didn't recoup the cost of their sales department selling our record to Target, Best Buy, etc.

I worked for Universal Music Group for a while, building a royalty calculation engine, and I can tell you that your experience is the norm. I got different numbers from different sources, but between 80% and 95% of albums never recoup, so the artists never see any money outside of their advance (if they got one). The ideal for the record companies is to keep it this way, so they can give the band as little in advances as they can get away with, and keep all of the rest.

I would suggest Donald Passman's book All You Need to Know About the Music Business

Seconded. Great book. It's actually the one that UMG execs handed me and told me to read for background information.

Skued Numbers?

I tried to buy the album from the US, my bank declined the charges. When I called them to find out why they said a lot of fraudulent charges come from that part of the world and would not allow me to buy the album. How many of the folks who didn't pay for it actually "couldn't" pay for it?

And it could have made even more money!

I view these results as a significant success for a new distribution model. But there are at least two things that make this experiment flawed and that limited how much money they've made off of In Rainbows:

Site Usability The website where you buy/download the albums is REALLY hard to navigate and understand. They don't even make clear that you set your own price. Had I not known beforehand that you could set the price, I would've abandoned the site because it looked broken.

Can't Purchase After Download If you download the album for free (like I did), but then decide you like it and want to pay for it, YOU CAN'T! Basically they let you have one download per email address. So unless you have another address handy to use the second time, you can't retroactively pay for your first download. That's just silly. Of course some of us want to decide whether we like it or not before handing over some cash, so this is a significant feature flaw.

So given these two significant things were hampering sales of the album, I'm actually pretty optimistic about the model. The next artist that does this and gets the site experience right and supports a "delayed" purchase, will make even more.

I persist in not caring

It's easy to sell things when you're already famous. That's what the record labels do: they make you famous. They put you in record stores and on the radio.

So I don't really care who downloads the albums of famous people. There are plenty of brilliant bands out there who you've never heard of and won't download their albums even when they give them away (and they often do).

Yeah, a bunch of famous people got in the newspaper and made a bunch of money off of it. Big deal.

My Indie Band Tried this as an Experiment -Results

On October 18th my band put our new EP up on our website for free with a donate link.
Here [stellarvector.com]

Results to Date
70 downloads
5 donations
% of downloaders making a donation: 7%
Smallest donation: $2
Largest donation: $12
Average donation: $6.80

As a poster suggested to me in the last thread about Radiohead, I'm not going to quit my day job.

Re:My Indie Band Tried this as an Experiment -Resu

There's a big difference psychologically between:

Putting up a free download link, and having a donate button
OR
Having an order form that explicitly lets you type in $0 for the purchase price.

Your method will not work because the audience at large feels no obligation to to "donate". Radioheads makes you feel like you ought to pay something, even if it's minimal. Those 62% must feel really bad about now, unless they didn't like the music, in which case they probably appreciate Radiohead for not charging them.

They still benefitted from the record industry...

If Radiohead did not have record labels such as "XL, ATO, Parlophone and Capitol" marketing them or in essence providing seed funding/capital, would Radiohead have had the ability to make a name for themselves in today's internet era? My band gives away their music for free and do you think KROC in LA would tell the world that my band gives away our music for free? Nope. Radiohead was taking advantage of the marketing that had already been done (and yes they paid for it with the labels taking their cut of Radiohead's work).

So how could you market your music? Mail CDs to the radio stations, doubt it. Battle of the Bands, local gigs, works fine but takes a while to build up a non-regional following, and even that might not lead to radio play. So you're still left with word of mouth.

and this is where Radiohead cheated. Their word of mouth was spread via the mass media. I heard about it on not less than 3 radiostations. Radioheads "Can we get people to download something for free?" is not much different from a local ice cream shop offering a free scoop on their anniversary. Since the ice cream is free, I'll give it a try even if I normally don't eat ice cream in February. Sure I might return one day and purchase some on my own, or maybe i'll never go back there.

While I envy Radiohead's experiment on downloading free music (or name your price), I think it would be far more interesting for a study to be done on the viability of the thousands of bands which do not already have an international following of giving away their music.

Re:what is radiohead?

They were the band that laughed at Scott Tinnerman.

Re:In other words, greater than 6 in 10 will steal

Rather than stealing I think this is a very interesting glimpse into a post-scarcity economy.http://en.wikipedia.org/wiki/Post_scarcity [wikipedia.org]
The most interesting thing about this is that while 60% of the people paid nothing, the band still made more than they would have under the old method. Perhaps we could do this with the food we currently pay farmers not to grow, give away staples like rice and flour for "pay what you want".

Re:what is radiohead?

It is receiving oral sex while relaxing and listening to the radio.

Re:what is radiohead?

Yeah, what is google?

(types google into wikipedia)

Ahh, I see!

Re:what is radiohead?

If every user [wikipedia.org] expected every /. [wikipedia.org] article [wikipedia.org] to contain hyperlinks [wikipedia.org] to define every [wiktionary.org] little [wikipedia.org] word larger [wikipedia.org] than two syllables, the it would indeed be a pile of shit [rnc.org].