Radiohead's DRM experiment

Numbers are rolling in from Radiohead's experimental approach to digital music sales, and at first glance, they might appear to be a repudiation of the model. That approach, of course, was for Radiohead to release their new album, "In Rainbows," on the Radiohead website without DRM protections while allowing fans to choose how much they were willing to pay. The move was revolutionary in that it moved beyond what even EMI was willing to do with its music library, which though available DRM-free through the iTunes music store, was most definitely NOT free.

A recent survey reported that 2/3rds of those who downloaded the new album from Radiohead's web site did not pay for it. Of those who did pay, though there were reports of an enthusiastic fan who paid as much as $1000.00 for the privelege (presumably, that person a) really liked Radiohead, and more importantly, b) really disliked DRM), the average selling price was around $6.00. Self-interest, it would seem, had gained the upper hand, and when faced with a no-penalty choice between free and not-free, most people chose free.

Now for the "at first glance" portion of this blog. When I read those reports, the first thing that occurred to me was "well, at least there were no distribution and manufacturing costs involved." Every cent earned from download of Radiohead's new album was pure profit for the band. Granted, that still leaves them with only $2.4 million ($6.00 x 400,000, which is 1/3rd of the 1.2 million estimated downloads), which probably isn't enough to maintain those Radiohead mansions in the English countrside, but imagine if downloads were ten times the level (12 million). That wouldn't be impossible were everyone as a matter of course to grow accustomed to getting their music directly from the band. Since it is widely reported that bands rarely see much by way of revenue from album sales in the first place (most of that money is kept by the label), Radiohead might be reasonably happy with the results of their duel with human self-interest.

Second, in spite of the growing preponderance of digital music spurred by the success of the iPod and the shift in consumption habits that has caused, CD sales are still the most important. Will the wave of press attention generated by Radiohead's digital experiement boost album sales? Will satisfying the demand for free media build enthusiasm for the band's work that otherwise would not exist, causing more to be willing to stump for the high-fidelity physical product once it's available in stores? Maybe...though we won't know for sure until the album goes on sale next year.

Last, let's remember that consumer willingness to buy things tends to have a lot to do with habits formed. A recent example of this princple was the difficultly .com companies had in shifting users of a formerly free product to a fee-based version. Consumers accustomed to free product tend to resist changes to the fee structure, which is why Iran (for a weird example) tends to have riots when the government tries to lower that country's extremely high subsidy on gasoline.

On the web, though there are stores through which to buy digital music, the more common source for digital media is through file "trading" networks. That, I think, may have created certain expectations, and there may not be much that a band like Radiohead can do about that.

If willingness to buy is based on expectations, however, you need to start giving consumers the opportunity to buy from you. The fact that Radiohead benefits directly from payments, and are taking certain risks on behalf of their fans, may start to shame people into changing their habits. Right now, Radiohead is faced with default human behavior shaped by half a decade of file downloading behavior. That behavior CAN change over time, particularly if more bands decide to follow a similar road to Radiohead.

In the final reckoning, however, I think the most important aspect of Radiohead's experiment is the opportunity to cultivate new listeners. The band isn't offering for free the full-resolution "lossless" digital media that you will find on the CD. For many people, 128kbps might be enough, but I can tell the difference, and real fans can, too. If that lower-quality free media drives sales of the higher quality stuff, not to mention builds more enthusiasm for the band such that they sell out concerts on a future world-wide tour, it will be hard to interpret the lack of "sales" which otherwise might have gone to trading networks as much of a loss.

I'm not an opponent of DRM, and have sometimes wished that a system could be devised that was minimally intrusive while allowing guys in their garage to release music on the web and generate sales from music-as-such (as opposed to simply relying on live shows). That's not the only way to make money from music, though, and if bands like Radiohead manage to create a new distribution model that makes good money without DRM (and cuts out the label middleman), more power to them.