New Research Paper: Making Money by Giving It for Free

August 13, 2014
By Doug Gavel

Free giveaways have long been a key component of many marketing plans, but their impact on music sales has remained somewhat vague. A new Harvard Kennedy School (HKS) Faculty Research Working Paper provides new evidence showing how unique short term low and no-price music offers can subsequently result in higher sales once the product is widely released.

"Making Money by Giving It for Free: Radiohead’s Pre-Release Strategy for In Rainbows" is co-authored by HKS Lecturer Pinar Dogan.

"In 2007, a prominent British band, Radiohead, released their new album and asked their fans to pick the price for downloading the digital album. Their album, In Rainbows, was subsequently available at pre-set prices, both in digital and in CD forms," Dogan writes. "In this project, we were interested in finding out the effect of Radiohead’s provision of their music –almost—for free on their subsequent album sales."
Utilizing data culled from weekly music sales, Dogan and her co-authors report surprising results.

"Prior to our study, we were expecting that the pick-your-own-price strategy to have cannibalized the band’s subsequent digital sales. We were expecting a similar effect on CD sales, but to a smaller degree. We found instead that the band’s strategy lead to higher digital album sales compared to what they would have obtained with a traditional release," she writes. "These findings together suggest that Radiohead made more money by making their music available for free."

The findings of this study might not be generalizable to other performers and music sales, Dogan writes, but she says that she and her co-authors "interpret it as a possibility theorem; it is possible to achieve higher revenues by offering music for free."

Pinar Dogan is a lecturer in public policy. Her research interests include industrial organization, economics of networks, regulation and competition policy with an emphasis on the telecommunications industry.

Pinar Dogan, lecturer in public policy

Pinar Dogan, lecturer in public policy

Photo Credit: HKS Media Services

"We found instead that the band’s strategy lead to higher digital album sales compared to what they would have obtained with a traditional release."

 


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