Radiohead’s Warm Glow

Radiohead’s Warm Glow - New York Times: "I didn’t pay anything to download Radiohead’s ‘In Rainbows’ last Wednesday. When the checkout page on the band’s Web site allowed me to type in whatever price I wanted, I put 0.00, the lowest I could go. My economist friends say this makes me a rational being.

Apparently not everybody is this lucid, at least not in matters related to their favorite British rock band. After Radiohead announced it would allow fans to download its album for whatever price they chose, about a third of the first million or so downloads paid nothing, according to a British survey. But many paid more than $20. The average price was about $8. That is, people paid for something they could get for free.

This phenomenon is not new. It’s called tipping. We do it when we go to the restaurant or the barber, or when we ride in a taxi. Though one could argue there are real tangible reasons for this payment — like not losing an ear the next time we get a haircut — the practice of paying more money than we are legally bound to do is still mystifying in an economic sense. For instance, why tip a cabdriver you will probably never see again?

‘Since we economists don’t understand tipping, we can’t really say whether this new scheme will work,’ Greg Mankiw, a Harvard professor of economics, said in an entry on his blog. He is not the only economist who is fascinated by the phenomenon. His Harvard colleague, Dani Rodrik, asked his blog readers, ‘Has Radiohead gone bonkers?’ He concluded, ‘Not at all.’ Radiohead will make money. But those who are paying for the download may truly be nuts.

One could argue that rationality isn’t everything. Radiohead fans might just be altruistic beings who out of the goodness of their hearts would like to give some money to a spectacularly successful and probably stinking rich rock band. But somehow, that doesn’t work as an explanation.

Or does it? Some economists suspect that what is going on is that people get a kick from the act of giving the band money for the album rather than taking it for free. It could take many forms, like pleasure at being able to bypass the record labels, which many see as only slightly worse than the military-industrial complex. It could come from the notion that the $8 helps keep Radiohead in business. Or it could make fans feel that they are helping create a new art form — or a new economy. People who study philanthropy call it the ‘warm glow’ that comes from doing something that we, and others, believe to be good.

Mr. Rodrik tested some of this with an experiment of his own. He offered his blog readers the opportunity to get a copy of his new book on globalization and economic growth for whatever price they wanted to pay, and said proceeds would go to the charity Save the Children.

The response suggested that ‘warm glow’ is in demand. A third of the people offered nothing. But the average bid was $21, and he received bids for as much as $145, more than four times the list price. The most interesting part was to hear bidders explain themselves. Those who bid little felt it necessary to provide a reason, like being a poor student. But those who bid high justified it too: many said they liked saving children.

This is all good news for Radiohead, which has boosted its indie credibility, while all the attention might actually boost its revenues. The band also offered online a package of two CDs, two vinyl records and a booklet for about $80, and it plans to release ‘In Rainbows’ as a single CD in January for fans who would rather hear the music with a better resolution than the medium-quality MP3 file available for download.

It is also potentially comforting news for the recording business. The industry has been struggling to find a business plan that will work in an online market in which — despite billions invested in antipiracy measures — fans can pretty much get their music for free if they want to.

Today, music lovers are left but two options: pay list price for an album, or perform what a fan might call a free download and a record company would call theft. Radiohead’s experiment suggests a third way out: let fans pay what they want and give them lots of touchy-feely reasons to want to give as much money as they can."

(Via .)