Have Radiohead shown us the future of music?

As everyone knows, Radiohead recently released their album ‘In Rainbows’ online for a nominal sum. It was suggested to me today that perhaps that is the future of the music industry and record labels will soon be obsolete. I agree that a release similar to Radiohead’s could be a good move for some groups, but I don’t think it will signal the end of labels as we know them.

I like Radiohead’s strategy because it shows some smart third degree price discrimination (although I think the internet price could have been higher). First, the album is sold cheaply on the net, which raises awareness of it and creates publicity. Concurrently, the album is released in a special boxed set; this extracts surplus from the hardcore fans who want to both signal their dedication to the band and obtain a physical release of the album. Having generated awareness and extracted the surplus from those who value it highly, the album is then released as a normal CD while internet sales cease. People who would buy the album casually have become aware of it through the publicity generated by the giveaway and can now purchase it in record stores. Why haven’t all those people already downloaded it? Most likely because of transaction costs and imperfect information.

So why don’t I think other bands could follow the same strategy? Radiohead’s approach worked, in a large part, because they are already a famous group. Their fame made the cheap release of their album big news. If they were a lesser known act then it’s unlikely they would have generated much publicity at all by releasing their album online, and independent of a record label. Record labels have the networks to provide publicity for those lesser known bands. Indeed, with well known acts, such as Radiohead, having the ability to release independently of the labels, one would expect to see the labels put ever more effort into securing the rights to promising new talent. The modus operandi of the labels may change but the internet hasn’t made them irrelevant for the majority of musicians.

  • CPW

    I didn’t know there were degrees of price discrimination. It strikes me that the “pay what you want” internet-pricing part of that model almost requires a new name, consumers discriminating among themselves based on their aversion to capturing consumer surplus.

    It would be fascinating to know the varying importance of willingness to pay (ie maximum price) versus willingness to share surplus in peoples’ decisions about what price to pay on-line.

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  • Haha, “aversion to capturing surplus”, I like that 😛

    I think we just have a cultural norm which requires us to give something in exchange for a valuable gift. People often feel guilty taking the album for free and taking advantage of Radiohead’s generosity without giving anything in return. Paying something assuages their guilt, so I think it’s still utility maximising behaviour: they’re paying to divest themselves of negative, guilty feelings. Obviously some people feel that guilt more strongly than others and have to pay more in order to eradicate it from their conscience.

    It would certainly be interesting to know the relationship between willingness to pay and level of guilt felt.

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