Consumers are Cheapskates
Posted on November 5, 2007
Filed Under OMG! Old Media is Dying! |
That appears to be the case if Radiohead’s experience with its new album “In Rainbows” is going to be the norm for bands that opt to let the public decide what their music is worth. The popular British band recently released their latest album directly on their website as a digital download. Fans were able to download the album for whatever price they were willing to pay, including $0. A study released today revealed that most downloaders (62%) chose $0.
While it is possible that Radiohead’s experiment could still be financially rewarding over the long-term, the fact that the majority of downloaders decided not to pay for an album produced by an extremely popular band whose previous albums were always chart-toppers does seem to prove that the in the digital age, a significant number of consumers don’t value content enough to want to pay for it. Of course, this is not surprising. When given the opportunity to take something of value for free (especially legally), most people will do so.
Without getting into a discussion about artists versus labels and consumers versus the RIAA, I think the bigger topic that needs to be addressed is the value of content to the consumer in the digital age. The problem is not that consumers think content has been overvalued by content producers, it’s that many of them seem to believe that content has absolutely no value whatsoever. Proponents of the “democratization of content” (the typical euphemism used by those who think content should be free) typically justify their support of content theft by pointing out that the record labels exploit artists and that old media companies have taken advantage of their monopolies to profit from now-antiquated business models. What interests me about the initial results of Radiohead’s experiment is that Radiohead cut out these evil middlemen. It went straight to consumers and asked them to pay whatever they thought their content was worth. And most didn’t pay a single cent.
The fact that most consumers are cheapskates who don’t value content doesn’t surprise or disappoint me. Again, if you offer a person something for free, there’s a good chance he or she will take it for free even if the long-term consequence of that action is negative (i.e. the artist doesn’t make money and eventually has to get a job at McDonald’s). By my own admission, if I liked Radiohead I’d still probably be part of the 62% who didn’t offer a cent for the new album. After all, I love a bargain and would much prefer to . And while I don’t pretend to have all the solutions to the challenges content producers face in today’s market, I do have some questions for the ideologues who always justify the “content should be free” mantra with their complaints about greedy record label execs and dinosaur media moguls:
- Why didn’t the fact that evil middlemen had been cut out of the equation encourage more consumers to pay for Radiohead’s album?
- If Radiohead, an incredibly popular band with a large fan following, couldn’t encourage more than 38% of downloaders to pay even a cent for its content, how are new acts and independents supposed to make this model, or similar models, work financially, especially when they don’t have the marketing muscle of the labels (who of course helped Radiohead gain its popularity)?
- How and why will content producers continue to produce content if the majority of consumers aren’t willing to pay for it and those who do may be willing to pay an amount that isn’t economically viable for the producer?
I await some answers.
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sir, you know you can’t draw any such conclusions from a single sample of data. you’d need many more experiments. radiohead is going through the purge portion of their creative cycle. their sonic register has been filled with odd shapes and sounds. what you’re hearing “in rainbows” (and the last couple discs for that matter) is a cathartic journey back to “renewed mind.” this moment will pass and the homesick will return. sales should follow.
Nice music review Stanley! You want a job at Rolling Stone?
OK, I will bite. Basically, the percentages are meaningless since freeloaders (here, the 62%) are not usually included in “sales” figures. It would be better to say that 22% paid at least $4.00, which works out to 1,200,000 * 22% = 264,000 units sold in October. This seems to match previous releases (e.g., Radiohead’s “Kid A” apparently debuted with 210,000 copies sold).
So, in response to the questions:
1.) Cutting out the middlemen lowered the price that a Radiohead customer was willing to pay for Radiohead’s music. The loss of the middlemen did not entice non-customers into becoming customers. This makes sense since the loss of the middlemen did not make Radiohead’s music more valuable, it simply made it less expensive.
2.) I would say that Radiohead did OK in this experiment.
3.) Traditionally, before the anomalous time of recorded music scarcity, musicians made money from performances. Most musicians will achieve economic viability by going “back to the future”.
Sources:
http://www.comscore.com/press/release.asp?press=1883
http://wjcohen.home.mindspring.com/insideclips/radiohead.htm
TiredOne:
1. Do you really believe that the elimination of the middlemen factored into the customer’s evaluation of the value of the music? I personally doubt that the average customer calculated the costs eliminated by the removal of the middlemen and adjusted the price accordingly. It would be interesting if somebody conducted a survey of these customers and tracked the methods they used to decide what to pay. I’d guess most decisions were arbitrary and were likely based upon the customer’s personal financial situation more than anything else.
2. The question is how new acts and independents can survive with this model or a similar one. It’s possible that over the long-term Radiohead might even come out ahead with this model but they are an extremely popular band who for years took advantage of the marketing power of the record labels. I just don’t see how new acts or independents are going to make something like this work because they don’t have the fan bases that label-promoted bands like Radiohead have built up.
3. I’m not sure this will work in today’s market, which is considerably different than the early days of recorded music, but I do think that the music industry will need to diversify its revenue streams and that includes a greater emphasis on live performances for top artists. But your answer skirts the real question. Let’s think about content in the abstract, not just about music content. If I cannot profit at all because people want my content but aren’t willing to pay for it (in some fashion) or the amount of profit that I can make is mimimal or does not justify the risks associated with its production, what happens? Take motion pictures, for instance. In an unlikely but hypothetical worst-case piracy scenario, it would not make financial sense for studios to produce movies. It would not be that the public didn’t want entertainment; it would simply be that the public’s actions cannibalized the business model that made their production possible. At the end of the day, there needs to be a balance. If we want content producers to keep producing, it’s in our best interests to make sure that they have a compelling financial incentive to do so.
Drama,
1.) I doubt that the decision was “arbitrary” since the data on the “Distribution of Price Paid Among Downloaders” (see comScore source) is not uniform. Furthermore, the data does not fit a discretized Pareto distribution as one might expect if pricing decisions were based on income. Personally, I like comScore’s explanation:
“a significant percentage (12 percent) were willing to pay between $8-$12, or approximately the cost to download a typical album via iTunes,…”
Therefore, it seems that customers did not actively attempt to cut out the middlemen; they just followed the lead of Steve Jobs (who is actively attempting to cut out the middlemen).
2.) The model looks like it works well for bands with Radiohead’s level of popularity. Of course, Radiohead became popular through radio play. My guess is that bands of the future will need to obtain a high level of popularity via free tracks before transitioning to Radiohead’s model.
3.) Marc Andreessen touched on this by asking:
“If you’re a mogul, the key question has to be, what would the founders of my industry have done in this situation? Really, what would they have done? Thomas Edison, Darryl Zanuck, Jack Warner, Irving Thalberg, Adolph Zukor, David Selznick, Louis Mayer, David Sarnoff, Bill Paley, Walt Disney…”
I think there are many possible solutions, but trying to reintroduce scarcity into the distribution system via mechanisms like DRM is not the answer. As for the future of movies, here are some thoughts:
(a) Patronage - worked well for the arts prior to the introduction of recording technology (e.g. “Thank You for Smoking” by the Paypal Mafia).
(b) Product placement - being incorporated into more and more films (e.g. “Harold & Kumar Go to White Castle”).
(c) Charge participants - maybe actor/actress is no longer a paying job, maybe it is a purchasable title (e.g. “Flyboys” as a David Ellison vehicle).
(d) Digg/Zivity - the largest remaining risk in film production is market risk. Eliminating films like “The Postman” before production is critical. Maybe one could start a Digg for scripts where the Diggers can purchase votes for $1 a piece. Then, they could Digg away at scripts. At the end of the year, one or more of the best scripts could be produced with the proceeds from the cash collected via the voting mechanism.
I am sure there are many better ideas, but denying that the future is here is not one of them.
Sources:
http://www.comscore.com/press/release.asp?press=1883
http://blog.pmarca.com/2007/11/suicide-by-stri.html
http://www.nytimes.com/2005/04/19/movies/19rich.html?pagewanted=print&position=
Good stuff TiredOne. But please don’t get the impression I am denying that the future is here. Pragmatically, content producers do need to evolve their business models, but frankly I’m always amused at the lame excuses that content thieves use to justify theft. I support the rights of intellectual property holders to choose what they want to do with their content, even if their decisions aren’t good for them financially.
If the minimum price was $1, how many copies would have been downloaded? One might say that many consumers will always choose the *cheapest* option, and that in the case, the cheapest option happened to be $0.