Wednesday, October 3, 2007

[Freakonomics] How Much Do You Think Paul Feldman Will Pay for the New Radiohead Album?

On the Freakonomics blog yesterday morning there was an interesting post (read here) about Radiohead's pricing strategy for their new album: allow fans to download it legally for whatever price they would like.

While at the very least an interesting economics experiment, this "new school" model is something which should be given consideration, particularly among bands which have a small yet fervent following.

Two interesting comments:

I predict that the experiment will be a flop. This is basically radiohead asking for a “tip” for their work instead of charging a fee. Most of the people we usually tip in everyday life are perceived to earn low incomes (taxi drivers, bell hops, wait staff, etc.) Tipping also thrives when people might feel shame for not tipping. Most tipping is done in person and lots of people feel guilted into leaving a tip for fear of people thinking they are cheap. When tipping is done online (an impersonal environment where no one would ever know if you are being cheap or not) and for a band who clearly is already quite wealthy, I think people will be less than generous. There will be a few die hard fans who pay a premium, but I predict on average people will pay less than the would be pricetag.

The only hope is to lure more people into buying through price discrimination. If everyone were perfectly honest then it would seem it would be possible to capture sales for the entire demand curve and the expirement would turn out well. The people who would have bought anyway would largely pay a premium and the people who otherwise wouldn’t have bought may buy, albeit at a lower price. I think because people are largely self-interested the average sales price will turn out to be what people perceive to be the cost of producing the album. Much lower than market

Posted by Tom


I paid $3.99.

A normal album costs around $12.99 - $17.99 at a record store, or $9.99 on iTunes or similar digital downloads. Since Radiohead is not going to pay their record company for distribution/other fees, doesn’t have to pay apple for rights to use iTunes, and doesn’t have to pay the cost for packaging/delivery - I felt the $3.99 to be a fair amount. This pays for the studio time needed to record the album, provides a healthy salary for the musicians involved, and allows me to purchase music at an affordable price.

Posted by George


1 comment:

James said...

Follow-up

From the International Herald Tribune:

"Radiohead's do-it-yourself, price-it-yourself model recognizes the new digital facts of life. Bluntly, listeners don't have to pay for recorded music: There are free versions online, as there are already of "In Rainbows," which was distributed without any attempt to thwart copying. The fact that fans have paid to get "In Rainbows" is a measure of their eagerness to keep Radiohead writing songs. And the deeper underlying reality is that fans have always set the value of music. They are the ones to decide, yes or no, to buy an album, a single or a concert ticket at the available price."