Selling Music Directly To The Fans, But At What Price?

I think the reason everyone is so excited about In Rainbows is because Radiohead is going directly to the fans, bypassing the label system and the online distribution hubs like eMusic, iTunes, and Amazon. This is the model the Internet has presented for years but nobody has really taken advantage of it.

It’s true that a band nobody has heard of can’t do this (yet). It took a band with a big brand to do this. But overtime, I think things will change and allow many others to do the same. More on that later.

I said that I paid about $5US for the record. I’ve heard a number of bloggers suggest that was low. Read Write Web did a poll that suggests fans think $5-$9 is about right for a mp3 download of a entire album.


That’s interesting and if the market settles into that range, then by all means I am happy to pay more than the $5US that I voluntarily paid for In Rainbows. But I think the $5 price is a pretty decent deal for the band and here’s why.

In the traditional label system, when a CD sells for $14, about $5 goes to physical distribution, to the distributor and the retailer, leaving about $9 per CD to the label. Of that $9, about $2.50 goes to the artist (depends on the royalty rate and the songwriting credits).

In the case of In Rainbows, Radiohead is getting the entire $5 I paid (and has to pay some costs associated with the web delivery system they are using). But they are certainly getting more than they’d be getting in a traditional label deal.

Silicon Alley Insider reports that In Rainbows has been downloaded 1.3mm times in less than a week. If $5US was the average price, that’s a gross of $6.5mm in four days. I think that’s a pretty good deal for the band, probably better than they could get in a traditional label deal.

But one thing that puts a wrench in all of this is that Radiohead is going to release the album on CD early next year through a traditional label deal. So everyone who paid for the download now feels that they might want the CD too. I really don’t understand why anyone would want the CD except for better sound quality. So, maybe Radiohead should have offered high bit rate mp3s, or even better AAC or FLAC.

If the technology platform that Radiohead is using were available to every artist in the world for a very low fee per download (say $0.25 per download), then we could see a lot of bands choose to sell their music this way.

Then we’d need some kind of marketplace to emerge to source up the most interesting music and point to the download services for each artist. That marketplace could even be advertising supported so that it wouldn’t need to charge for the "marketing services" it provides the artists. That’s how digg works today to surface interesting stories.

At $5 per download, an emerging band would only have to sell 25,000 downloads to make a decent amount of money off their music. The system that exists today sucks up so much money on marketing and distribution that 25,000 CDs makes no money for anyone. And that’s why we need a new model, the kind of model that Radiohead is pointing towards.

#My Music#VC & Technology