LOS ANGELES (AP) - Radiohead let its fans decide how much to pay for a digital copy of the band’s latest release, “In Rainbows,” and more than half of those who downloaded the album chose to pay nothing, according to a study by a consumer research firm.Some 62 percent of the people who downloaded “In Rainbows” in a four- week period last month opted not to pay the British alt-rockers a cent. But the remaining 38 percent voluntarily paid an average of $6, according to the study by comScore Inc.

Now it’s easy to gloat. But that’s not the point here. The point isn’t about gloating, though you can be sure the recording industry will be stupid enough to do so.

But let’s do an analysis

1) What did Radiohead do right?
2) What did Radiohead do wrong?
3) Why did people pay $0 for it?
4) What are the chances of consumption?
5) Etc questions?

What did Radiohead do right? Radiohead did a lot right. If they wanted the world to know about them, this is the exact way to go about things. There would be thousands, even millions of music lovers (if you want to call it music) that didn’t know about Radiohead. Now they do. And that alone sets it up, for the next level. Because if their music is indeed as good as their fans/and to-be fans expect, then the tour circuit is extremely lucrative.

They could make diddly squat on their songs, and make a fortune on their tours. Is this phenomenon uncommon? Yes, in the recording industry it is. But not in the publishing industry.

Every author knows one thing. Or should know one thing. You make diddly squat for your books, but you make a whack in services and speaking. Radiohead, if they play it right, are now officially in the speaking business. If they sit around and do nothing but curse, that’s their first mistake.

What did Radiohead do wrong?

As I predicted (and believe me, you can do this test a million times, and you’ll almost always get the same result), the payoff was little or nothing. People have no value, unless there’s value specified to them.

And the reason why people paid $0, is because they don’t have an understanding of value. But you may protest. You may say: Well, a CD costs $15 or $20 and people know that. Yes, they do. But so what?

You know that a computer costs $500 or $1000. If someone said: Pay what you like, what would you pay?

Your brain is always looking for value. But more than that, it’s looking for a deal.
So you pay what you think it’s worth? No you don’t. You pay whatever you think is a nice deal for you. And a 50% off or a 100% off on an album is a very nice indeed. So hey, people did what came natural to them. They cut a good deal for themselves.

But waitasec. The deal’s not over. At least 2% of those who got the nice deal and didn’t pay, will pay in future, given a chance. So they’ll pay for different packaging e.g. a live concert.

Why? Two reasons: 1) The Reciprocation Principle: 2) The Comfort Factor.
The reciprocation principle is simply wanting to pay back. And just as we have the greed factor in built into us, we tend to reciprocate as well. So if the 2% found the Radiohead album good, they are going to come streaming back to buy concert tickets, and future albums (even at full price). Now is 2% a bit low? Yes it is, but it’s enough to generate profits. And 2% is probably at its lowest.

It could be 5% or 20%. That doesn’t depend on us. It depends on how closely Radiohead has understood its audience and given the audience what they want.

And then there’s the comfort factor. If their songs are way cool, then the audience will sing along. They’ll want to go to their concerts and be comfortable knowing the lyrics and knowing the tunes. Audiences go to concerts to listen to the same song they could hear at home. There’s a reason why. It’s a different experience. And it’s a fun experience. It’s very unusual (even weird) to go to a concert where you don’t know the band, the lyrics and the tunes. So by releasing their album in full, they’re increasing that comfort factor. Plus, it will lead to back sales of their previous records. So it’s not just future sales, but back sales that will kick in as well.
So why did people pay $0 for it?

Well, we already know that they want a good deal. But think about it again. There’s still a risk, right? If I go into the store to buy a Radiohead, I’m going to do some checking around. I’m going to check out some reviews, play some songs, make sure I hear some songs on the Radio etc. And only then would I tend to buy. So I like The Police, and I like Garth Brooks, and I like Jack Johnson. But hey, you’re not going to get me to go like a robot to the store, and simply pick up the new album.

No way Jose.

I’m going to make sure that I’ve got the risk covered, by doing at least some homework. And when it’s free, what’s the risk? Zero. So I’ll take that zero risk, thanks. And I’ll pay zero. I’ll be really grateful, but that doesn’t mean I’ll pay. Besides it makes me look really, really stupid when I’ve paid say: $10 and the dude down the road has paid $0. So I’m going to play smart-ass, and pay $0. Risk. Peer pressure. Hmmmm..

So what’s consumption going to look like? Free is a hard sell. Consumption is higher when something’s paid for, and when that consumption is driven home. In our private studies, we’ve found that consumption is dependent on several factors. Media and free are two of those factors. The medium in play here is mp3 audio.

And therefore is pretty darned good, because it will be instantly playable in the eardrums of most of Radiohead’s audience. The very same medium used for say, Barbara Streisand fans, would probably drop consumption like a rock. Free. Ah, free.

Now that’s a problem isn’t it? Because paid goods tend to be consumed faster, and more often than unpaid goods. So if someone actually did some research between those who paid their $6 and those who paid $0, you’ll find that consumption is much higher with the $6 fans. You may also find that they’re more likely to buy future concerts, audio, video.

The freeloaders aren’t all freeloaders, but a good chunk of them will not pay, and it’s also likely to reduce both present and future consumption. This isn’t an issue about whether or not they will consume.

There will be consumption, because this system of pay as you like is a novelty. But imagine if every band did the same. Then the consumption will drop like a rock, because now we have too much choice.

So when the Internet was just embracing e-commerce, you could have a teleconference and hundreds of people would show up for your free teleconference. When Hotmail launched their free mail service, the masses came thundering through. But launch a free teleconference now, and see who comes.

And launch a free email service and see who comes. That’s consumption for you. And while the consumption may be slightly higher at this point in time, it will–without a doubt–be higher in those who paid vs. those who didn’t pay.

Etc. Questions: So was Radiohead smart? Or dumb? Hey, nice question, but unless they had a strategy, they were just doing stuff because it seemed cool. The future will tell. If you see a rollout of events, and other Radiohead stuff immediately, then they were really smart.

And then again it depends on how the audience likes/dislikes the product. If they put out a top class product, then they’ve got it spot on.

For more um, free psycho-stuff like this above: Go to http://www.psychotactics.com