Radioconomics

One of these men possesses a pretty keen sense of economics. These are the facts: After Radiohead released Hail to the Thief, they fulfilled their commitment to EMI and opted not to continue their relationship with the label. For the past four years, they have laid low until Jonny Greenwood tersely announced that they would be releasing their latest album in two different fashions. The first option is to download the album off of Radiohead.com. Incredibly, the band allows the purchaser to enter the amount of money they are willing to pay for the album. If you want to pay nothing, you can pay nothing. If you want to pay a lot, you can. The second option is to pre-order the Discbox which contains 2 LPs, the downloadable album, a CD with more songs on it, and some artwork. The discbox costs 40 pounds, or around 80 dollars.

Why is this brilliant? One of the arguments about the internet and file-sharing is that it indicates that the general public has zero willingness to pay for music. If someone can acquire something for free, they will. Those who download for free argue that they are unwilling to pay 15 dollars for a CD or ten dollars for a download, especially of something that is an unknown quanitity. It has been proposed that the willingness to pay of music consumers is not, in fact, zero, but something hovering above zero, because there are plenty of consumers who are willing to pay money for music, but not to pay the money currently demanded. This, of course, assumes that consumers are a monolithic body, all desiring cheap music. Smart marketers realize that their are a number of different markets to be tapped. With the music market, you continue to have a segment of consumers who purchase CDs and LPs for one reason or another. These people, generally, have a higher willingness to pay for music.

Radiohead's strategy identifies the consumer that is willing to pay a little for a download and the consumer that is willing to buy a lot for a product like the discbox. I would be very interested to know the average price of the download and I can bet that it is not zero. I think that you have here an incredible opportunity to discover what the market's willingness to pay is for a Radiohead download. This is also a great opportunity to see what percent of the market is willing to pay the much higher price for the discbox. In a class I took a year ago, this is the very issue that we discussed, trying to identify what percent of the music market is willing to purchase CDs and LPs and what is the willingness to pay of those who rely almost exclusively on digital music (and how to solve the solution). I'll try to put my solution at the time on a later post. But for nowI hope some economist somewhere is asking Radiohead for price information and hopefully we'll see a paper about this soon.