Now that the hubbub about Radiohead’s new release has died down, there are a couple of things worth adding to the analysis from various sources I’ve read, including Hypebot, Bob Lefsetz, Digital Music News, and Contentinople. (I haven’t of course read every commentary on Radiohead, so it’s possible that someone has said these things before me and better than me—I don’t do this for a living, you know.)

First, I think people are missing a crucial point about Radiohead’s “name your own price” strategy. It is not all about giving listeners what they want, namely DRM-free music that’s free (or nearly so); it is also about giving Radiohead something it apparently wants (and that it could not get working through a major label): deep information about its listener population beyond the hard-core fans (i.e., those who’ve already joined the Radiohead fan club), including in particular information about which listeners are good candidates for up-selling strategies aimed to move more Radiohead merchandise, tickets, and other Radiohead-related products and services.

Consider: The minimum price of the new Radiohead album isn’t really 1p (or 0p), and it really isn’t “up to you.” Part of the price for getting the album is supplying your name, email address, physical address, and other contact information, plus permission to have Radiohead send you newsletters and merchandise and ticket offers. (Read the terms of service, folks.) Note that Radiohead has structured the offer so that this information has a high probability of being valid and not faked or fraudulent:

  • People will not supply fake email addresses, since they need to receive the email with the information about how to download the digital album when it becomes available. (Incidentally, this helps explains why this was structured as a pre-release offering: If people could get the downloads immediately then they’d have less motivation to give a valid email address.) Some people of course could be using “throwaway” addresses, but probably only a very small fraction of people would bother to do this; those who do try to deliberately prevent Radiohead from emailing them later are obviously not good candidates for future Radiohead offers, and can be flagged as such later when future emails to them bounce.
  • People have to supply a valid credit card, and this enables a cross-check against the postal addresses they provide (which will typically be the billing addresses for the cards). Again, some small fraction of people will try to “beat the system,” most notably by using stolen credit cards. However the low price would likely reduce the number of people doing this: Why commit credit card fraud for something that costs less than $1 (including processing fees)? Of the remaining people who do commit fraud, some may be detected, the associated charges reversed, and the supplied (invalid) contact information flushed from Radiohead’s database. (I presume Radiohead and its credit card processor anticipated a fair amount of potential fraud, and this helped dictate the size of the credit card processing fee.) Of those whose fraud goes undetected, most if not all probably supplied 0p or 1p as the album price, and will be flagged appropriately as noted below.

As a result of this offer Radiohead will thus acquire a massive listener list with verified (or at least potentially verifiable) information about how to reach those listeners via email, postal mail, or phone. But wait, there’s more:

Because listeners can name their own price, Radiohead also gets valuable information about the level of a listener’s devotion to Radiohead’s music and their willingness to provide their hard-earned cash to support Radiohead’s creation of that music. (Note that these are not the same things: Someone can be a devoted fan but not a good customer—or, at least, not a good customer yet.) Radiohead can then use this information to tailor its direct marketing efforts to these listeners.

In practice those who responded to Radiohead’s offer for just the digital release (i.e., excluding people who got the digital release along with the discbox) probably fall into three general categories, and marketing to the categories can be prioritized accordingly:

  • Those who paid 0p or 1p, or some other miniscule amount (under $1). These people are likely very casual fans of Radiohead or people who are not Radiohead listeners at all but were just attracted by the novelty of the offer, perhaps mixed in with a few people who really like Radiohead but have absolutely no money to spend. For the most part these people are not likely prospects for becoming good Radiohead customers; however at a minimum they might become serious Radiohead fans and help build good word of mouth around Radiohead releases.
  • Those who paid some fraction of current prices for digital albums, say in the $2-5 range. These are probably people who like Radiohead but are not dedicated enough fans to pay full price. (I happen to fall into this category myself; I paid $4 for the album.) These people are probably not real good prospects for buying Radiohead merchandise, tickets, etc., but at least this offer captures incremental revenue from this group that Radiohead would not have otherwise seen with a traditional major label “everybody must pay full price” strategy. And of course Radiohead still has a chance to try and up-sell these listeners in the future.
  • Those who were willing to pay a price roughly comparable to what they would have paid through the iTunes Store or Amazon, or even somewhat higher, say in the $8-12 range. These are probably serious Radiohead fans who are willing to go out of their way to support the band, especially when they can be assured that all their money is going to the band itself and not to the label. These people are prime candidates for marketing efforts aimed at turning them into truly dedicated fans and (even more important) lucrative customers for Radiohead physical merchandise and live shows.

So Radiohead not only gets a high-quality listener database, but it now has everything it needs to do highly-targeted marketing to its listeners, including marketing targeted to listeners in particular geographic areas. This is why I partially disagree with Bob Lefsetz’s comment that Radiohead “look like shitty businessmen”; no, they just look like shitty e-commerce site operators. However in my opinion the underlying business strategy is a brilliant way to maximize potential revenue in a way that also respects potential customers, and quite possibly will be the model for how at least established acts interact with their listeners (not just their hard-core fans) in the future.

matthew - 2007-10-05 05:54

This is a totally authentic piece, very accurate and on the money. Most people just don’t understand economics. Most business graduates fall into this category. Radiohead is going to make an insane amount of money on this deal - even at $1 a pop. The music is digital and being stored on a server somewhere - it costs them next to nothing to distribute and diminishes with each purchase.

Dwane Mann (europasol1@yahoo.com) - 2007-10-12 13:44

Are the things that they are doing wrong? Their business decision can maximize their outcome.

Michael (n@na.com) - 2007-11-17 02:50

One thing about the whole hubub about this album that people are missing is that it is really killer. This album has the most listening value of any album since the 70s.