Worthless Radiohead Analysis

Radiohead is perhaps the most successful band to give away new music online, making its recent album, “In Rainbows”, available to download on a “pay-what-you-want” basis. Unfortunately for Radiohead—and music industry trend-spotters—62% of downloaders paid nothing, according to comScore, an internet information provider. Only 4% of fans paid over $12.

I have been reading articles like this all over the net, and the analysis is utterly horrible. First, the data on which they are basing this is questionable. But, lets just ignore that and assume it is correct.

The problem is that they focus in on the meaningless statistic of the % of people who pay as shown in this pointless chart:

At first glance, the chart seems perfectly fine. So, what is wrong with it you ask?

The problem with this graph is that it makes it look like things would be better if the percentage of people who didn't pay went down. But that isn't true.

Imagine you have 100,000 paying customers and then you could choose to have 100,000 unpaying customers, or 1 million unpaying customers. In the first case 50% of the customers paid, in the second 10% did. But in both cases you are making the same amount of money and in the second one you have an additional 900,000 people who have listened to your song. I can't think of a single reason why you would want to be in the first case, but that is exactly the conclusion you would draw by looking at this graph.

Those that chose not to pay come from 3 categories: those that would have paid if they had to, those that would have gotten the music for free via file sharing anyways, and those that wouldn't have paid anyways but decided to check out the music because it was free. Of those 3 only the first reduces profits, but it is impossible to know what percentage of the freeloaders this makes up.

The digital download also serves as advertising for their $80 CD and music concerts. While Budweiser has to pay for people to check out their advertisements, Radiohead was able to get lots of people to spend their own time to download and listen to their music. These "freeloaders" might end up making more money for Radiohead then those that bought a regular CD at the store.

To fix this graph, I would add another slice to the pie: people who could have downloaded the album for free but chose not to because they could care less about Radiohead (myself being in that category). Even if you assumed a crazy high estimate of 10 million downloads, with a world population of 6 billion that means that 99.9833% of all people fit in that category.

When it comes to digital downloads there are only 2 important numbers: total number of downloads and total amount of money made. That's it. And neither number has been reported in this article. It would be interesting to know how much money they made after the first week on their last album compared with how much they made off of downloads on this one. But, there is no way to figure that out either.

So, before we judge the Radiohead experiment a success or failure, lets at least get the right numbers and analyze them in the correct way.

via The Economist