Radiohead Case Study

Eminent British rock band, Radiohead, is planning to have an unorthodox album release
in which they will allow the public to determine the price they would pay for the digital
download of the album. Critical in determining whether this unconventional strategy is a brilliant
idea or a calamitous mistake for the band, we must understand that the goal of the band is not
motivated by profit. Tony Wadsworth, the president and CEO of EMI (the parent company of
Radiohead’s music label) made this apparent when he remarked that Radiohead “wanted to find
other ways of doing what has to be done to get their records into as many hands as possible.”
Thus, the primary goal of Radiohead’s unusual album release is to disseminate their music to as
many fans as possible, as opposed to it being profit driven. With this objective being the driving
force behind the release, this idea is brilliant since its originality attracts massive attention, its
price point ensures anyone can afford it, and it offers a greater potential than releasing it with
iTunes (the main alternative) with limited downside.
In attempting to spread their music to as many fans as possible, Radiohead’s decision to
release the album via this route is essential in garnering the attention of the public by intriguing
them with a “refreshing” deviation from the norm. Whereas the music industry generally had an
established standard whereby fans would pay $10 for an album and $0.99 per track, Radiohead
shrewdly breaks away from this conventional method and, in the process, captivated
unprecedented levels of media attention. Critics and supporters alike vigorously discuss the
potential consequences this could have on Radiohead and the impact it could have on the music
industry as a whole moving forward. Whether the dialogue is centered on either end of the
spectrum is irrelevant; this intense speculation fuels publicity for Radiohead’s creative
experiment. With many fans joining in on the conversations, the general public is tuned into the
latest updates and even nonfans may have become absorbed by the sheer novelty of the band’s
album release. Thus, this strategy essentially increases the market size that Radiohead has
available by factoring in this element of public debate that would otherwise have been absent
with a “normal” album release.
Another venue by which Radiohead acquires a larger target audience of fans is by setting
a variable price that makes the album accessible to nearly everyone that could make it to their
webpage. At a time when music piracy is significantly disrupting the sales/profits of the industry,
Radiohead’s ingenious idea virtually removes any need consumers may feel to pirate their
album. Consumers are largely attracted to pirating because, for a relatively small risk of getting
caught, they can illegally download entire albums for free. If a consumer pirates only 2-3 albums
per month, it would amount to a savings of approximately $240-$360 per year. Thus, consumers
don’t mind taking miniscule legal risks that comes with pirating at the price point of $10 per
album. Radiohead combats this risk assessment of consumers directly as people who would scoff
at purchasing an album at the typical industry price, opting to illegally download it instead, may
be dissuaded from doing so if the entire album were to only cost them $0.90 (assuming they had
to pay solely for the service fee). Many of these people could consider the risk of illegally
downloading the album not worth the minimum price required to obtain it legally; something
they would not have experienced were Radiohead to price the album at usual values. Even
consumers that are wealthier and have no qualms paying for albums at normal values would find
an appeal in Radiohead’s release as they can experience exclusivity obtained by ordering the
deluxe package that is pricier. Consequently, Radiohead had produced a product that caters to
both ends of consumer wealth. This logic falls in line with Radiohead’s overarching theme of
getting their music to be heard by as many people as possible.
When conducting a price analysis of the next best alternative (iTunes) to releasing the
album, Radiohead’s method is more likely to reach a wider audience without sacrificing too
much in profits, if at all. The two different methods for generating income can be described by
the following equation: .99x – y(z + 0.90) > 0, where x is the projected volume of sales with
iTunes, y is the projected volume through the self-release, and z is the projected average price
consumers pay for the album on Radiohead’s webpage. In other words, if the equation is
positive, then the expected revenue is greater with iTunes than through the self-release. Looking
closer at the constants, the $.90 service fee that Radiohead charges for the album almost matches
the amount of money that Radiohead would make using iTunes. In fact, holding x and y
constant, Radiohead’s projected average price would only have to be $.09 in order to generate
the same revenue as with iTunes. Since the deluxe box set version of the album is being sold for
$80, it is feasible that any sales of these sets will considerably increase the value of z, as
arithmetic averages are greatly affected by large outliers (assuming the worst-case scenario that
most people would not pay close to $80 dollars on their own). Additionally, this price may also
serve as an anchor, indirectly causing consumers to pay a larger amount for the album had this
option not been available, further increasing the value of z. Moreover, though the values of x and
y were held constant in the last example, in reality, this would not be the case. In fact, the
projected volume of sales using the self-release method would almost certainly be far greater
than through the release with iTunes, due to the large public attention the method had captured.
Thus, the value of y is expected to be far greater than the value of x. Even if the value of z is 0
and removed from the equation, the value of y would only have to increase by greater than 10%
in order to generate greater profits than with iTunes. Therefore, even though Radiohead’s main
goal isn’t profit driven, they nonetheless stand to make greater profits using this method if either
the value of z is greater than $.09 or if the value of y is 10% greater than the value of x.
To conclude, Radiohead’s groundbreaking strategy to release their album at a price level
that depended on the customer was an amazing idea. Particularly so because of the dampened
sales that the music industry was experiencing due to streaming services, illegal pirating, and
digitized music. Because of these conditions, it was perfect timing for a band of Radiohead’s
caliber to experiment and attempt to break the mold in the music industry, as exploring new
territory had very large upsides with minimal downsides after conducting price analyses.