Pay As You Like

It is big news that the band Radiohead has broken with convention and decided to offer their latest album, In Rainbows, for, well, whatever people feel like paying. If you have not seen their website yet, I recommend you take a look. The fonts and colours are vaguely reminiscent of the early days of home computing, which I doubt is accidental for a band so studied in everything they do. When you get to the page that asks for your money, you get the option to type in the amount you want to pay.


Repeated hits on the question mark icon only calls up screens that confirm, then reconfirm, that you really can decide how much you want to pay. But is distributing music on this basis really surprising? The rise of digital music and piracy means that revenues from selling music keeps falling and falling. On the other hand, associated revenues from live performances and merchandise keeps going up and up. Most radio stations have never been anything more than channels for non-stop advertising of popular music. When I was a kid, I would tune to Radio 1 and use a cassette tape to record DJ Bruno Brookes playing the week’s Top 40 singles. It was a primitive form of piracy. However, stealing the music helped to instigate a life-long passion that also caused me to go to the record shops and buy many of the songs I listened to. The music industry has made an awful lot of money from me since, so they benefited in the long run. So, now that piracy is so hard to combat, and the cost of distributing music is falling to negligible levels thanks to the internet, more and more bands will decide to give away their music for free. The main point is that if some people give the music away for free, and some make you pay for it, then more people will listen to the music given for free. And that will secure better long-term popularity for the artists prepared to cultivate a fan base. Bands with a very committed following, like Radiohead, might reasonably assume that the odd fan will make some small contribution, and that small amounts from a small share of very very many people will more than cover their costs as a result. Better still, they may give the download away for free, but will also sell the music as part of a nice bit of packaging. Then the album cover becomes the equivalent of the shirt worn by a football fan – a sign of belonging that people will happily pay excessive amounts for, because they want to show other people they belong. All that changes is that instead of advertising the music, the advert is the music. The bands instead make money from gigs and t-shirts, neither one of which can be copied quite so cheaply or easily.

Radiohead are by no means alone. Indie band The Charlatans are giving their next album away for free, in co-operation with radio station XFM. Record shop retailers responded angrily when Prince gave his album away free with a newspaper. What the retailers are forgetting is that their industry is dying, as was demonstrated when Richard Branson decided to sell the Virgin Megastores chain, almost 40 years after he opened his first shop. Nobody wants to go down with a sinking ship, and musicians are no different. The trend is for record shops to shut and music to be sold on-line, and nothing will reverse that. The artists listed above are simply finding a new business model to sustain their established careers. In future, there will be an increasing number of musicians that make their reputations on the back of music given away for free. Last week I was in a packed venue to see Dan Le Sac vs. Scroobius Pip, an act whose popularity is based almost entirely on people watching their video on YouTube.

Although DLSvSP have not yet been signed to a record label, they clearly are a success. They pack people into venues up and down the country, week after week. They can also sell their music directly through iTunes, which suggests that music labels will become irrelevant over time. It is doubtful that any music label would have had the courage to back this incongruous duo that do not even begin to fit into any standard marketing niche.

If music can be given away for free, it is not such a big leap of the imagination that other recorded entertainment will eventually go the same way. I have already blogged about the prospect of television shows being given away for free, with the viewers having the option to make a donation much like they have with Radiohead’s new album. After all, George Lucas made a fortune by cutting a unique deal with studio 20th Century Fox. Instead of demanding money up-front, Lucas secured the rights for sequels and merchandise for Star Wars. The studio considered these to have negligible value. History shows they were very very wrong to do so. So how much longer will it be before a latter-day Lucas comes along, secures film financing, makes a good movie, gives it away for free, then cashes in a strong and long stream of ancillary revenues, augmented by the much higher levels of exposure attained through reaching the maximum number of viewers?

There is only one glitch in all of this. Lots of telcos are banking on downloads and streaming traffic being the next generation of revenues. If the product is given away for free, their charging model collapses. It does not even matter if the networks do away with the neutral net, as a two-speed internet will still be fine for letting people download a movie slowly and overnight, especially as they will be encouraged to make copies for their friends. That might make the next generation of revenue assurance more about securing a portion of merchandise rights and ensuring a correct split of revenues than it is about counting CDRs. The telcos that win will be the ones who facilitate the sale of merchandise, with user-friendly ways of buying toys and t-shirts as people watch the content. If content is king, but content becomes free, then every telco business model ends up looking a lot like Amazon’s. Unless the telcos hope that people will choose to give them voluntary donations as well ;)

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.