It's official: music is worthless

Radiohead's recent decision to make their new album In Rainbows available in an "honour box" system, exclusively on their own website, has sparked plenty of discussion.  The band, out of contract with their label, financed the recording themselves and asked fans to pay what they thought the album was worth before downloading.  It seemed to be the ultimate acid test to settle the debate every music biz employee wants an answer to: will I have a job this time next year?  Or, less bluntly: does the general public still believe that music is worth paying for?

According to online research firm ComScore, the answer is a resounding no.  According to their figures, 61% of the people who downloaded the album thought it was unreasonable to pay anything for it at all.

Only 4% of the Radiohead fans who downloaded the album paid anything approaching a normal high street retail price (between $12 and $20).  12% of the fans paid the average price of an album bought online (between $12 and $8 - iTunes average price is $10).  Another 6% coughed up the cost of a mid-price album (between $8 and $4) and 17% paid a token amount (between $4 and a penny).

Last week, two Wall Street analysts downgraded the stock of the Warner's Music group, triggering a sharp drop in share prices.   Richard Greenfield of Pali Research wrote: "No matter how many people the RIAA sues, no matter how many times music executives point to the growth of digital music, we believe an increasing majority of worldwide consumers simply view recorded music as free."

In recent weeks other top-selling recording artists including Madonna and Oasis have announced plans to change their business model.  Nine Inch Nails Trent Reznor is currently contemplating his next moves after announcing the end of his relationship with Universal Music.  Reznor, while acknowledging that Radiohead's model has some "serious flaws", also concedes that in the current climate, the relationships between record labels and artists such as himself "has gotten to a place where it couldn't be worse".  Raising concern over the high price of CDs and expressing concern for his audience, Reznor questions why any artist should be angry at fans that are "so passionate about hearing it they go online to get it two weeks before the music debuts? I want them to be that way."

Meanwhile artists like Prince and Ray Davies have opted to give their albums away, and Paul McCartney, James Taylor and Joni Mitchell have chosen to work with Starbucks, more commonly known for their $5 coffee than their music business acumen.

So does anyone know what the future hold for the music industry?  Back on Wall Street, Greenfield urges music executives to embrace a new ad-supported business model, one that dramatically scales back the size of record companies, makes music available for free download,  and doesn't shackle songs with restrictive DRM. He doubts this will happen anytime soon.  "The music industry is not ready to endorse such a move at this point, and even if it was, the economic model transition will be incredibly painful.”

So...will I have a job next year?  Luckily I work in part of the industry that has always been "scaled back", and personally have continued to scale back our overheads in the last five years.  Our growth comes from the niche markets which remain strong for us: vinyl, limited editions, outsider music.  But is it sustainable?  That I can't answer yet, and I join Trent Reznor and the rest of the industry in searching for answers.  The only thing I know is that it won't be the 'big four' - the traditional industry major labels - who lead the way.

 

Comments

[David Kovach]

God bless you Allison Raine :-)

[DJCHUCKIEBTHEMECHANIC]

ARE LIBRARIES STILL FREE?
MEDIA MULTIMEDIA WHAT ABOUT FREEDOM OF INFORMATION
DONT I HAVE A RIGHT AS A PUBLIC CITIZEN TO CATCH
UP ON WHAT THE GANGSTERS HIP HOP ARTISTS ARE
THREATENING JOE PUBLIC WITH???
I.E. RAPE THEFT DRUGS ET AL

[r.m.]

I am sorry to intrude here. I was researching this radiohead stuff and came upon your blog.

I am still trying to absorb as much as i can about this, but from what i can see, Radiohead encoded the mp3 release with poor quality.
They essentially leaked the album themselves, and gave people the option to pay for the poor sounding leak under the guise that it was done to reinvent their participation in the marketplace.

Everyone i know who downloaded it paid nothing because they felt that if they liked it they would have to buy a quality copy later when it was released properly (the day it was downloaded, most large music-news sources reported that there would be a 2008 street date for a proper release).

Radiohead had a chance here to do something new.
They could have blazed a trail here that bands of that bulk rarely do - they could have sold this stuff themeselves, set up their own company, and done this independently. They could have appropriated the praise that should be given to every independent label every single day.

They would have made more money, would have had more power in the marketplace, and they would be better off. The marketplace would be better off too.

Instead, they seem to have chosen the usual slow and dumb route of going with a label that is a subsidiary of a major.
What their actions have amounted to is a leak you can pay for (if you want), a box set of vinyl/cd that you can pay far too much for by mail, and then a "proper" major label subsidiary release next year. All of this hype about them and their potential business practices will just be hype and publicity for their impending regular route release of said record.

I am disappointed in them.

As for the death of music, i think that is not going to happen in a retail sense.

People will always buy records/cds. They always have.
What Southern does, and has done for a long time, is a godsend to the music industry. I can only assume that it is a struggle to sell records, but I think that the music that Southern sells and helps to promote is not fashionable, and will not be victimimized by commerce and culture in the way that fashion is prone to.

What do i know?
Like everyone else i know, I'm just someone who buys records.
I hear stats that people are buying records online, but i don't think that most of those people will actively buy the records were it not for the convenience of having the main technology for the dissemination of digital music bolted to their desk in front of them for 6-10 hours a day.
The amount of music that can be bought online exclusively is small. I can use the internet to buy far more from virtual retail outlets and have hard copies sent to my home. I think that mail order through the internet deserves far more attention.

I know that in my small town, that is what has destroyed our record stores. They cannot stock all that is available to them, and now that mail order is prevalent, they cannot stock all that is available to me.
When i people want to browse for music, they can hit the site of any label, or any mp3 blog, and get a sense of what they want to buy, and then they can buy it from somewhere online. Little ma and pa brick and mortar stores cannot compete with that. I can get more from, and hear more samples from, boomkat or insound or any number of actual label sites in 1/2 an hour than i could possibly listen to in a store without spending a couple of hours and seriously pissing off the staff.
I have to actively go to my local record store to support them. I do, because i feel it is important for the community to have that space, but it is not convenient. But, maybe i'm a dinosaur. I want a community far more than i want convenience exclusively.

I think I agree that you need a brand. Had Radiohead used their brand for independence, and to actively make the culture of buying records better, it would have been helpful, but i'm not surprised that the legal entity that is Radiohead have gone the other way.
They want the credibility for acting ethically and promoting sustainability, but they aren't about to re-evaluate their working methods to do it.
Radiohead leaving a major label is a misnomer.
Radiohead selling their record online and cutting stores and distributors out is, from everyone i know who has downloaded it (about 60 people that i've spoken to for this project), not true. Those people will buy the record when it comes out, if they like it, or it will be destined for their trash widget when they need to clear room from their hard-drives.

Music is not dying, nor is retail. It is having a hard time competing with the complexity of a modern (partly virtual) marketplace, but there is still room for it.

As long as communties survive, so will marketplaces. Until we can live completely online with ease and necessity, the human contact and the local record store will always have a place.

I live in Canada. I know that CD/Record sales are up. The deathcry of an industry here is a manufactured convenience for the majors to get pity and to effect change in a direction that will suit their corporate structures.
I also know that file sharing/peer to peer sharing/downloads, and so forth, do not hurt CD sales. Here is a report from our government to prove it:
http://strategis.ic.gc.ca/epic/site/ippd-dppi.nsf/en/h_ip01456e.html

My research shows that major labels are selling less cds than ever, and compared to their previous profits, they are making less profits, but they are making more money per capita than ever because they have streamlined their catalogues (they have limited it to what is most likely to sell and there are more greatest hits packages than ever before, for example), and their holdings are less (so they are taxed less on their products), and they are printing less cds, but they sell more of those that they print than they ever have. They also retain the rights and copyright to everything in their back catalogue, and can license it out for a large cut of the profit without having the baggage of physical copies they cannot consistently sell.

Majors are doing fine. They can cry about the death of music, but they are not going to be going down with that ship. I think they are doing it to hurt their competition (the independents) so that they can control the market for.

Just my 2 cents.

Sorry that i intruded for so long.

[Robert Brearey Jr.]

I have read other articles on this, and, particularly in the comments on those sites, many people chimed in on how they weren't real fans, but downloaded the album because of the hype, and then deleted it because they didn't like it. Natasha points out correctly what the real question is, as, when looking at the average per-unit take for this album, the band is getting roughly what they would've received for moving the same amount of units through an established label/distributor system. It is an example of how people are perfectly willing to pay for something they want.

I could see this coming back at the infancy of downloaded music, when record companies here in the US decided to do away with CD singles, as they cost as much to produce per-unit as a full-length album on CD. I was just getting into using CDs to DJ, and was buying a lot of dance material on CD singles. I had no desire to pay $15-$18 for a CD that I would only be using for 1 or 2 tracks, and I wasn't aware of subscription services yet. I don't think many other consumers wanted to buy a whole album just to get the single on the radio, especially if the rest of the album had a bunch of filler tracks with just a couple of tracks slated for release to radio/video stations. Now, with download services, you can pick and choose what tracks you get, and THAT is what the labels fear. They only really make money on album sales. They didn't want CD singles then, and they sure don't want single-track downloads now.

Buying direct from the artist ups the ante considerably. If only they allowed for higher-bitrate downloads, even lossless formats.

[Natasha Loder]

Why music is valuable

The Radiohead example is interesting but I'd like to disagree with some of the analysis if I may and suggest a very different conclusion. For a start, you can't compare what people paid online to what people pay in a shop. It’s a different product bought by different customers making different purchasing decisions.

There is so much we really don't know that it is hard to draw conclusions. How many of the people who were drawn in by the honour system would have actually gone out to buy a Radiohead album in the first place? We don't know. So to say: "only 4% of Radiohead fans who downloaded the album paid anything close to retail price" is to assume that the 100% who downloaded it were fans. Maybe only 4% were fans and the rest were interested passers by who wanted to take up the opportunity to try something they wouldn't normally buy. That would put an entirely different spin on things. And maybe the people who paid nothing, will later be much more likely to pay something for the next album or to go to a gig. How do you value that?

More importantly, when someone chooses to pay something (rather than nothing), how do you rate what they pay? It is a big mistake to compare what they pay with the full retail price of an album. Anyone buying a plain digital album on the internet knows that the band isn't paying a shop overhead, isn't supplying them with artwork or any physical object, and the essential cost of replicating the music once made is essentially free. They also know they are getting an MP3, which is not the same quality as a CD. All these things matter when someone decides what to pay. As does how much they like the band, and how good they think the album is. So the money they are choosing to pay is the money they want the band to have, not how much they used to give the shop. For those who choose to pay, its a more direct measure of the value the person places on the music and the people who created it.

The other important thing we don't know is how many of the people who paid a little, would actually have never bothered buying the album at all on CD, because while they like Radiohead, they are not so crazy about them that they want to pay for a whole album. This system allows people who sort of like Radiohead to pay what it is worth to them. It opens an entirely new revenue stream, of the many more people who are willing to pay a little but not the full price. But we don't know how many people who would have paid more if they had been forced to.

What we also don't know is how many Radiohead fans are such traditionalists were cut out from this system. Either because they don't buy music on the internet either because they haven't mastered the technology or because they are not part of the ipod generation or because they didn't like the two choices they were offered: MP3 or 40 quid boxset.

The only way of looking at this example, and the only way the band will be looking at it, is to ask how much the band would have got under the old, traditional model and how much they get now. If you take out the distributors, the label etc. the band were only getting a small proportion of the full retail price. If anything, the Radiohead example shows that people are willing to pay musicians to produce music.

All the media comments have focused on the wrong question. Its not "why did so few people pay a lot of money", it is "why did anyone pay anything at all?" If we can't get to the bottom of that, then the music industry is screwed. We should be asking what incentivises people to pay, can we do more of this, can we make enough money doing it to keep the lights on? So how do you put people in a position where they are more likely to pay than free ride? By giving them other stuff that can't be copied digitally such as: clothing, accessories, songbooks, artwork, access to special gigs or websites, anything that will help music buyers feel they are distinguishing themselves as buyer with kudos rather than a free rider.

But there will always be free riders and digital music makes this easier than ever. But the good news is that people are lazy, status conscious and really, really like convenience. If you make it easy and cool to buy music online, people will do it. But it must be easier (and cooler) than borrowing someone's CD and having to copy it and then give it back to them. Or you have to offer them physical stuff they want and can't get hold of by swapping electronic files. Thinking differently is the hardest thing. And purists will hate having to punt merchandise at music buyers in order to make sure that music gets paid for. But, hey, the world is changing and someone needs to figure a way of keeping the lights on. The future belongs to those who figure out how to do this, not those who complain it isn't the way it used to work.

One final thought, not every band is going to be able to work the way Radiohead/Madonna/Prince have. To make it on your own out there, you need a strong brand. And building up a brand takes time and effort--something that record companies are still very good at. :)