The music industry is definitely one which is subject to constant change, the medium in which music is listened to by consumers has changed several times during its history. From vinyl to tapes to CD’s to download and now to streaming. The price people pay for music is also a part of the industry which has been subject to change in the last few decades. With the advent of online downloads and piracy after the huge success of websites like Napster and torrent sites like Pirate Bay, the music industry was shaken to its core as consumers didn’t need to pay for music in order to have it. Fortunately for the industry, music streaming apps like Spotify and Apple music have now become a financially stable way for individuals to consume music and for artists to be paid for their work. During the height of the music piracy crisis the English alternative rock band Radiohead decided to challenge the music industry and released their seventh studio album In Rainbows via a “pay what you want” method. The album was available for download online and fans could have it for as much or as little as they liked, and despite heavy criticism of this business model it generated the most amount of revenue for digital download of any other Radiohead album at the time. Why? The Consumer Surplus.
Consumer Surplus is an economic concept which measures consumer benefit from consuming a good or service. The Consumer Surplus is the difference between what a consumer is willing to pay and what they end up paying for a good or service. For Example, if you were to look up a shops website and see something you wanted was €10 and then when you went into the shop and the item was actually available for €7 then you would have a consumer surplus of €3, assuming that €10 was the maximum amount that you were willing to spend on the item.
So in Radioheads case, the way they released In Rainbows created a business model where people only paid what they wanted to pay for the album. Which means yes, some consumers paid nothing for the album but, die hard Radiohead fans paid way over what they would’ve had to for the album. Meaning that Radiohead had less people paying for their album but, they had a few people paying way more than what they normally would’ve paid for a Radiohead album because they were able to pay what they valued it at.
Below is a table of Best Selling CD’s as of 09:35 05/10/2017 on Golden Discs first page of best-selling albums available at: https://goldendiscs.ie/collections/chart-cd
The table shows the average price of a CD but it also shows the large deviation there is in prices of different albums. Most of the population may not value an artist’s music that much that they would pay large amounts for it, but you will get a certain amount of people who are hard core fans of artists and will be willing to pay €18 instead of €13 to get a deluxe version of an album because they value the artist’s work so much. So by charging a “one price fits all” price of €13 you are only attracting people who are willing to pay €13 for a product. You are also not allowing yourself to capitalise on individuals who are willing to pay above €13 for an album.
Radiohead were able to generate more revenue from the release of In Rainbows because they didn’t set a cap on what people could pay. Fans who were willing to pay only €2 were allowed to, and fans who were willing to pay €20 did so because they weren’t capped at just €13. People paid exactly what they wanted to as opposed to what the industry deemed they had to which, in some cases, is above what the industry would have charged for the album.
By Daragh O’Leary