Bourreau, Marc, Pinar Dogan, and Sounman Hong. "Making Money by Giving It for Free: Radiohead’s Pre-Release Strategy for In Rainbows." Information Economics and Policy 32 (September 2015): 77-93.
In 2007 a prominent British alternative-rock band, Radiohead, pre-released its album In Rainbows online, and asked their fans to “pick-their-own-price” (PYOP) for the digital download. The offer was available during an 8-week window, soon after which the digital and CD albums were commercialized at pre-set prices. In this paper, we use weekly music sales data in the US between 2004 and 2012 to examine the effect of Radiohead’s innovative strategy on the subsequent sales of the band’s albums. We find that Radiohead’s PYOP offer had no significant impact on CD album sales. Interestingly, it yielded a higher percentage change in the digital album sales compared what would have been obtained with a conventional release. This suggests that the increase in sales due to the vast media attention generated by the offer strategy must have dominated the cannibalization effect. Consequently, the PYOP offer had a positive impact on sales revenues, even if one assumes no revenues were obtained directly from the PYOP downloads. However, this “success story” does not readily apply to similar strategies adopted by other bands. We show that Nine Inch Nail’s free provision of its new album, The Slip, decreased digital album sales.