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In October 2007, the English rock band Radiohead enhanced its already enviable avant-garde credibility by releasing its seventh album, In Rainbows, online. Fans willing to offer up their names and e-mail addresses–or at least, fake names and fake e-mail address–could pay what they chose for the album, even downloading it for free. The band, and the “tip jar” business model it had adopted, were the talk of the music press and the blogosphere for weeks.

Just days after the release, ­the site Gigwise.com, citing an unnamed source “close to the band,” claimed that 1.2 million copies of the album had already been downloaded. At about the same time, a survey by a British company called Record of the Day pegged the average price paid at about $8. But Billboard, the U.S. music industry’s leading trade magazine, estimated the number of downloads at closer to 400,000, although it accepted the $8 average. And ComScore, a consumer research company based in Reston, VA, that collects data on the online behavior of a representative two million people worldwide, calculated that in the first 29 days of October, about 1.2 million people visited the Radiohead site. Although a “significant percentage” of them downloaded the album, ComScore said, the average payment was $2.26.

As of this writing, the band has declined to release any figures. Radiohead’s manager dismissed the Gigwise report as “exaggerated.” But band representatives also called ComScore’s data “wholly inaccurate,” and Ken Kovash of Mozilla, the organization that designed the Firefox Web browser, revealed that ComScore had underestimated the number of people who visited the Mozilla site in September by about 60 percent.

Billboard surmised that a conventional CD release of In Rainbows would have brought Radiohead between two and three million dollars. If anything like the higher sales estimates obtain, then relying on the public’s largesse rather than the efficiency of record-label marketing campaigns increased the band’s take. But even if ComScore’s less impressive figures are right, and a “significant percentage” means no more than half, then Radiohead grossed $1.36 million in the last three weeks of October. That’s still a big enough number to turn some heads.

Money: It’s a Gas
The digitally compressed music file presents a conundrum that may be unprecedented in the history of commerce: soon the music industry’s chief good will be one that its customers can easily acquire at no cost.

The industry’s response to the threat of piracy has been threefold: to use digital rights management (DRM) software to limit illicit copying and distribution; to discourage file sharing through lawsuits; and to attempt to exploit the new technology in ways that preserve high profit margins.

By most accounts, the first two strategies are doomed and will eventually be abandoned. But the third has been much more successful. Last summer, iTunes sold its three billionth audio file, which means that it has generated around $2 billion in revenue for the record companies partnered with it. And while iTunes, which charges 99 cents per download, is by far the largest online retailer of compressed music files, it’s still only one of many.

As the market for music comes to be dominated by generations weaned on file-sharing software, however, piracy is likely to take a bigger bite out of online sales. So one of the questions the music industry will need to answer is how much it can afford to charge customers who consider payment entirely optional.

Data that address that question are hard to come by, but the online music store eMusic may, through a quirk of its business model, provide some guidance. The ­second-­largest online retailer of compressed audio files, eMusic still lags far behind the leader: according to its CEO, David ­Pakman, it has only a hundredth as many customers as iTunes. Those customers pay monthly subscription fees that entitle them to fixed numbers of downloads: $10 buys 30 downloads, $15 buys 50, and $20 buys 75. Subscribers who regularly download their full monthly quota thus pay from 27 to 33 cents per MP3.

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Credit: Robin Sellick/Headpress/Retna

Tagged: Business

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