Radiohead's "In Rainbows" points to new pots of gold

On October 10, Radiohead uploaded its newest album, "In Rainbows," to the Internet, and allowed fans to pay whatever they wished for the DRM-free recording. In the time it took Thom Yorke to click, "Send," everything changed. For the entire history of the music recording industry, a band looking to produce an album faced an arduous quest, requiring the assembly of a motley fellowship of producers, agents, audio technicians, advertisers, photographers, manufacturers, distributors, even lawyers. The album itself had to trek from writing table to studio to lab to factory to distributor to retail store before it ever graced the ears of a fan.
As I said, everything has changed. The blossoming Information Revolution has created a global economy, in which anyone can create practically anything, and trade with anyone, anywhere. Radiohead (helped, of course, by their fabulous wealth) recorded "In Rainbows" from home, using studio-quality equipment that allows bands to become musicians, producers, and technicians at once, cutting costs by tens of thousands of dollars per day. If you doubt the efficacy of such an attempt, listen to the music--$500 headphones might reveal the shortcomings of the recording, but the quality is identical to their prior albums on the $20 iPod earbuds that we all use. Now, once they had a finished product, they were truly finished--no subesequent supply chains of production, no mark-ups along the distribution line. They uploaded one, digital copy, and every subsequent copy purchased incurred exactly zero marginal cost, making every sale almost pure profit, especially relative to the expensive production systems of traditional records. Singer Thom Yorke, summed the issue nicely in a comment to TIME, " “I like the people at our record company, but the time is at hand when you have to ask why anyone needs one."
Radiohead's radical move represents an intelligent response to this newfound Global Village, where information diffuses at an incredible rate among millions of users, defying even the most violent attempts to thwart its flow (compare Napster's spectacular downfall with the continued growth of P2P networks). Increasingly, the hype surrounding a new album breaks days before the release, when a pirated copy (often originating from within the studio itself, cf. Underoath's recent album, "They're Only Chasing Safety") leaked to the Internet soars into millions of downloads within days, or else dissipates after the release, as illegal downloads steal revenues from retailers. If music-lovers will bypass $15 prices regardless, why not allow them to set a price reasonable for themselves? After all, some money is surely preferable to none. The initial sales dispersion of "In Rainbows" is telling--about one-third of the downloads received no payment (except for the 45 cent credit charge levied on everyone), but high numbers of outrageous bids (upwards of $21) have brought the average price to about $8. Whether from guilt, philanthropy, or elation at collaborating directly with their band, many customers have found incentives to pay outside mere material self-interest.
Changing technology has made the recording industry unprofitable; Radiohead's new approach admits these realities. Do not, however, assume that the age of professional music has ended. Album sales have always paled before the profits from concerts and lower-cost merchandise, and both industries are booming. Further, this new medium of sale will likely open hitherto unexpected profit opportunities. For instance, the required credit card form forced every customer, even those who paid nothing, to give their name, email, and home address--this information is a valuable on its own, and the marketing schemes and products sold using it could be more valuable still. Innovation always comes from unexpected directions--that's what makes it so profitable. In the early part of the 20th century, when labor groups and economists alike bemoaned the inefficient, oligopolistic, government-collusive railroad industry, two men invented the airplane, and revolutioned transportation. I sense a similar change is afoot for the recording business.