Variable pricing

Apparently Radiohead has a new album coming out on 10th October 2007 called In Rainbows. It will be available as both a set of physical artefacts (CD, album, liner notes etc) and as a digital download. The facinating thing about it is that the price of the download is up to the buyer to determine. How much do you, the consumer, want to pay for this album of music (that you have not yet heard)?

An amazing approach (if true, and I have my suspicions like many people). Certainly a great example of marginal pricing - Radiohead has paid for the recording, and have a lot of money in the bank, and the actual cost of distribution is low so even £1 per download will probably make money. The traditional model says that you charge the same for the download and the CD, and try to make all your money on the initial release.

There has long been a theory that for established artists, cheap or even free downloads would make them more money. That few people would pay £10 for a Led Zeppelin CD, but millions would pay £1 for their entire catalogue - so what is the right price point?

This comes on the same day that The Charlatans has announced that they will give away their new single and album in order to create interest for their tours, which is where they really make money. And to be honest, I can't image being remotely interested in buying their new album but I might download it for free, then decide that they are worth seeing live. So as a promotional tool it works well.

The day before Travis had a CD attached to the Mail on Sunday, but even at £1.90 I thought that was more than I wanted to pay for a Travis CD - though I was happy to pay that for the Prince CD Planet Earth.

The music industry is going through convulsions trying to work out how their business model has to change. The one thing that is clear is that recorded music is vulnerable, but going to a gig is an experience that people will pay for. Increasingly this seems to mean that recorded music is just an advert for the live experience. Which is a bit hard on poor live performers, but may be a return to how music has traditionally made money.

The success or failure of this experiment will have big implications for the music industry. And possibly for other industries that can also utilize digital distribution - software and games. For years there have been shareware software programmes, where people sent a donation of whatever they felt a programme was worth. Or frequently didn't. Can you imagine if Microsoft and SAP tried the same?

Or if the business services industries moved to clients paying what they felt a piece of work was worth, rather than a day rate or fixed project fee? New business models would be needed for both buying and selling.

How much did I pay Radiohead? What do you think?