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Radiohead’s Tips Might Be Higher Than You Expect |
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Last week I estimated that Radiohead made $10 million off their newest release, In Rainbows. While many people were interested in my argument, a large number thought I was being way too generous. Taking into account the psychology of tipping, I feel that Radiohead’s actual profit will be higher than people expect.
Of those that thought my numbers were high, a few offered other estimates based on similarly shaky evidence. Eliot Van Buskirk at Wired’s Listening Post and Xeni Jardin at Boing Boing, citing “London music insiders,” estimated Radiohead’s take at $6 million, or $5 a download, whereas I predicted people paid $8 a download. In addition, many commenters on these sites and others thought the average price paid would be much lower, on the order of around $1.
Clearly, I can’t say what Radiohead’s actual take has been. They haven’t released the numbers. I suspect they will hold back for some time, preferring to let the suspense and speculation fuel even more publicity. However, I’m fairly certain the eventual average price paid per download is going to surprise some people.
As Eduardo Porter observed in the New York Times, what people are doing when they pay for a free download is essentially leaving Radiohead a tip. This makes them irrational beings in the eyes of economists, as they are paying for something they could get for free. However, millions of workers in the service industry make the bulk of their earnings in tips. It is a phenomenon ingrained in our society, and it is, contrary to the view of some people, a reliable and sustainable business model.
According to tipping studies, the amount of the tip is only weakly correlated with the quality of service and is hard to explain in the context of free market transactions. Tippers pay only after a service has been delivered, so they are not paying for special service in advance, and out of town customers tip as well as locals, so they are not paying for a cozy long term relationship with their wait staff. However, for waiters and waitresses, squatting at the table, touching diners informally, and writing notes on the back of checks increased tips measurably, up to seventeen percent in some cases. In a nutshell, if customers felt a personal connection to their wait staff, they were more likely to tip generously.
You see, people don’t like taking something of value for nothing, especially from someone they care about. It makes us uncomfortable. We know that a good album or good service has inherent value, and we are reluctant to receive those goods or services from someone we empathize with without giving anything in return. This plays directly into Radiohead’s hands, as they are a band known for cultivating a personal connection with their fans.
Indeed, the release on In Rainbows for free solidifies this personal relationship. Radiohead is giving fans a gift. Fans, in turn, can thank Radiohead by paying what they feel is appropriate, knowing that every cent of their hard earned dollars will go directly to the band and not to a record label. As one fan put it after paying $9 for In Rainbows, “Radiohead’s been my favorite band since I was 13 years old. I felt, like, an honor code with them.” (Incidentally, I personally know four people, including myself, who have downloaded the album. Not one of us has downloaded it for free.)
With a personal connection and a quality product, it isn’t hard for me to believe the actual price paid per download of In Rainbows is closer to the $8 mark than the $5 mark. While many maintain that the only reason Radiohead was so successful with this experiment is because they have spent years in the traditional record industry building up their profile, I believe this tipping model could be used any artist, large or small.
If this kind of giveaway does operate on the tipping theory, as it seems to, then there is no reason to believe popularity has anything to do with the price paid for a download. Indeed, street musicians can often earn upwards or $100 a day on tips, yet nobody knows their names. People will tip for quality music, especially if the artist makes an effort to cultivate a personal connection with listeners.
If the era of the album is truly over, and the era of free music is truly upon us, than this tipping business model just might work in the long term. It’s something we as music fans will have to get used to, but there is no reason to assume musicians won’t be just as successful using this model when compared to their success within the current record industry.
Or perhaps I’m just being way too generous with human nature. What do you think? If this business model proliferated, do you think people would regularly tip for downloads, even if the band was unknown?
I’m not sure tipping is the right analogy. We pay for the album as a price for the work; tipping is more an appreciation thing than an amount intended to reflect the value of the product.
I personally think they made a killing not because people paid a lot on average or because a large percentage of downloaders paid, but rather since - quite simply - there’s no recording industry to claim the lion’s share of the value of a sale.
Maybe I’ll set up a tip jar for my next novel; the first one just went out for free
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TBPMD!
I think you’re being a bit generous in your figure, but that’s okay–your underlying point is correct: Radiohead made a lot of money on this release. However, the real value for Radiohead isn’t so much in the money from the downloads, but in the database of users they are generating. Our CEO, Jeff Pollack, who has worked with all the major rock managers and helped produce Live Earth, outlined this exact point in this article: http://www.pollackmedia.com/e107/news.php?extend.111
It’s worth checking out.
I paid around eleven dollars US, which was around 5 GBP at the time. To me, I was happy to be trusted by the band enough to show my appreciation. It wasn’t a incredibly huge amount, and I wish I had the money to give everyone and everything I loved a million dollars, but I am surprised most speculators are expecting less from everyone.
I thought I was being a bit cheap!
You may be right Jim, but I’m wondering how those emails will be used. Radiohead isn’t a typical online company. It will be harder to generate revenue directly from those emails. For example, I doubt Radiohead will suddenly start pushing merchandise on these people. I would assume they might use the list to sell the special edition boxed set of In Rainbows. I would also assume they would use the list to promote their concert tour (though returns on that are hard to measure).
I’m skeptical, though, that each name would be worth $10-$15 beyond what people already paid for the download, as that linked article suggests.
Well, now we’re getting into the concept of lead generation. How much is a long-term fan of a band worth? If you ask managers, a long-term fan is worth a large amount of money. So how much would a manager pay for a list of leads that would bring in even a nominal return of long-term fans? The number quoted was $10-15, and I think that is reasonable when you consider that one fan will bring in–through merchandise, tickets, etc.–hundreds of dollars for a band.
So, although it sounds a bit crass in a Glengarry Glen Ross way, we are indeed looking at a fairly sophisticated lead generation program.
Agreed, this is lead generation. I guess the question is, how many who people downloaded the album are new fans? The new ones are certainly worth something. The old ones, not as much.
Either way, this is a really hard thing to quantify. While typical businesses can measure the lifetime value of a customer, I can’t imagine where a band would begin to measure that. Radiohead’s music touches so many people in so many unmeasurable ways.
Still, this is a great experiment, and I look foward to seeing their actual sales numbers and what they do with that email list (now that I’m on it).
(by the way, anyone here get emails from Radiohead other than their order confirmation?)
It would be great if everyone followed suit with this concept. No more ridiculous CD prices between 15 and 20 dollars each. The record industry has continued to screw over fans and claim more and more of the profit throughout the years.
I remember when CDs were first coming out. They held demonstrations at the mall, like it was an amazing new juicer. I witnessed a guy hammer a nail through a CD, break it in half, and drag a key across the surface. He taped it back together and it still played great. These days you get a poorly made product from a recording studio that skips every time there is a hint of a finger print.
Additionally, it’s nice to see when a band is willing to trust in their fans instead of suing them through Napster.
I definitely think this sort of thing is the way forward. Most people are happy to pay a reasonable amount for music they love, especially if they know it is all going to the band.
What I don’t like is paying loads for an album and then finding that I don’t like half of it. My vision is that bands could offer downloads completely free. The could be put in a zip or something and seeded to file sharing services to save download costs. The archive could contain a html file containing a link to the bands website. Once you have listened to the album a few times you can use the html file to get to the web site and use an online tipping facility to pay them whatever you think it is worth.
Without the record company skimming off their share, even if most people paid only $5 the band is probably making more money than they would have with a traditional sales model.
Remember they are selling directly to the consumer, and so there is no wholesale price, and there is no packaging, shipping etc. Their only costs are some bandwidth and server time since they are getting all the free publicity from the stunt.
If anyone has read Influence: The Psychology of Persuasion by Robert Cialdini the best selling book from the 80’s that the guys from Google are always banging on about - they won’t be surprised by the revenues Radiohead has generated from this. One of the basic premises is that humans by their very nature feel obliged to return favours even to those we don’t necessarily like and that society looks down on people who take from others and never give back. Just imagine if someone you don’t know very well gave you a nice present tomorrow. You would probably be touched and feel obliged to buy them something in return.
Radiohead are offering everyone a present of their new album and of course the vast majority of people feel obliged to pay what they feel it is worth.
(i paid £5 and everyone i know paid around the same)
I downloaded free, but found the music lacking and tossed it in the trash. If it had been good and worth paying for, I would have expected better bit rates and more interesting musical content.
There’s another factor: we want to encourage Radiohead to do this again next time!
Online tipping is just one more way besides the oppressive sales channels the labels control. I think bands will survive in both models in the long run, customers will have choice, bands will have choice of revenue generation models, and there won’t be a single cabal controlling the distribution of an entire product category. Ultimately that’s good for music. More music will be made, more music will be heard, more money will flow through the industry. The only losers would be the cabal of controllers through record labels.
In the long run, this will also lead to advances in copyrights, creative rights, legal protections, and so on.
It’s understood that tips form a large part of a server’s take. It’s also understood that Thom Yorke and co. aren’t clipping coupons for their next meal. When a rich guy asks me for a tip, the don’t-be-a-sucker psychology kicks in.
If tipping is to be such a revolutionary way to pay for music, I wonder when all of Radiohead’s concerts will be free?
I think this move by Radiohead is just part of the reorganization of the music industry (favoring new players like Apple), and bands deriving more of their take from live shows and merchandise.
While I’m sure Radiohead is raking in the cash on this album, I question the long term efficacy. Right now its new, unique, and (theoretically) cheaper than most mainstream albums… but it’s also garnering a lot of media attention. I view it as a PR stunt that benefits the fans. If this was a common practice I think you would have more people downloading the albums for free or paying a dollar or two.
For an example, look at the software market. Once the average consumer purchases a computer, he expects it to work . Never mind details like which software was or was not paid for. So, when he wants Word, he calls up his neighbor’s kid and has her put Office on his computer. When she tries to tell him it’s going to cost $499.95 (US)… what do you think he says?
Similarly, I think the vast majority of people will, over time, stop associating a value with music if Radiohead’s model is followed. Yeah, a few hard core fans will still pay for the music, but that’s about it.
I hope I’m wrong — I like the *idea* of this sales model — I don’t think I am though.
Two points:
1. I know serves who make really good money on tips, on the order of 60k - 80k a year. They aren’t clipping coupons.
2. Radiohead is operating on a much larger scale, and therefore his take will be larger.
And as for tips for concerts, that seems like a good idea, given rising ticket prices.
Blake, the software market is a great place to look. Witness the number of companies operating on the shareware and donationware models and you’ll see this business model has legs.
alot of the good shareware i know is crippleware , and you’re demanded to pay for full functionality. so it’s not really tips based.
An interesting payment model - is paying right after listening to the song , using a simple button embedded in the media player ,any tip that you would like .
The likelihood of paying while enjoying the music would be increasing probably.
Forget “freeware” and “shareware”, that stuff is all crap.
Look at free open source software. These guys work on coding software and give it away for free, with the code and their blessing if you feel like taking a shot at improving it.
That’s freedom, that’s the way it should be.
If we weren’t a society enslaved by the bankers that print our money most everything in life would be like that, as the level of abundance would be close to absolute.
Yes open source is great , but i think that in many niches closed source/shareware etc delivers better software.As evidence ,we have open source with us for quite a few years , but still there are many closed source/shareware/web-based-software companies operating and making a profit.
It’s basiclly what motivates open and closed source software makers are different , and that makes them go into seperate software niches.
My friend is a major radiohead fan and she “tipped” $20 USD for the album, because she knew all the money was going to the band. I think that $10 USD is a decent median and would be what I’d expect the album to go for when all is said and done.