Bill Burke, of JBoss (now Redhat), has an interesting post on his blog about Radiohead’s experimental release of their new album In Rainbows. They apparently bypassed the record label and offered the album directly on the internet, with no DRM. There is an “order form” where purchasers name the amount (in pounds & pence) they’re willing to pay, if anything, and then are given a link to the download, in zipped MP3 format.

He quotes from a BBC article with some interesting statistics (and asinine conclusions.) He rightly points out that if open source projects were as wildly successful failures as Radiohead’s album, they’d be very profitable indeed. Of the 1.2 million visitors to the site (no number given for number of downloads), only 38% chose to pay. But the average price paid (including those who chose to pay zero, I assume) was over $6.

It was said that the break even point per download was $1.50, which is not accurate, unless someone is getting a royalty. The download costs themselves couldn’t amount to more than a few pennies per, and granted that overhead (development, hosting, etc.) might bring the total to $1.50 per, it scales. At some number, (say 1.2 million), $1.50 per is the total cost including overhead, and at any past that point, the cost per download reduces by at least 95%.

I do, however, suspect that some distributor agreed to make it available for something like $1.50 per download royalty, which is 3 times Apple’s 49 cents royalty for iTunes. Fair enough, given the high risk of such a completely DRM free download. So Radiohead may have a fixed cost of $1.50 per download, and some other distributor took the gamble of needing some number (say 1.2 million) of downloads to break even, though in a competitive marketplace I am sure that others could do it for less of a royalty at a smaller volume and still profit.

Regardless, no artist on earth has ever gotten $4.50 per record, or it’s rough equivalent 25% of gross sales. If you assume 1 in 10 visitors downloaded the album –and there is no reason to believe it is not higher, since there was only a brief form to fill out and an unencumbered download– then they’ve managed a cool half million in sales in the first month. Not too shabby, and probably in line with their most popular albums.

I suspect as the marketplace opens up that the price will go down, and perhaps even the biggest bands with the most loyal followings will only net a few hundred thousand dollars in such a scheme, and that the “labels” that promote them, taking the volume risk, will be happy with even a 10% margin of that.

A popular band will still make millions on concerts and merchandise, physical items where the rules of scale apply less than a half million or so electronic bits reproduced nearly infinitely.

A less popular band, claims the BBC, could not make a profit. But that’s ridiculous. If you manage to only sell a few hundred copies of your CD at $10 (assume $5.50 production costs), a few hundred more at $4.50 don’t hurt your bottom line. And if you’re not making a lot of money off of CD sales, millions of downloads and pirated copies can only increase potential merchandise and concert sales. In any case, it couldn’t hurt it.

On a final note, the BBC published a quote claiming that Radiohead (and their fans) are stealing from the record label, because “Radiohead have been bankrolled by their former label for the last 15 years.” And while Radiohead might not have gotten famous without the marketing of the label, the label did very good by them, and the opposite is obviously true: that Radiohead has been bankrolling the label for most of the last 15 years.