01001110 01001001 01001110: The Revolution Continues

Four months ago, I blogged about Radiohead's revolution. Free of their label contract, they did their own release online. They sold directly to consumers, averaging a fifth to a sixth of the retail price of a CD, and realized over twice the revenue per album.

In March, the revolution continued. Nine Inch Nails is free of its label contract, and released a new studio project, Ghosts (or Halo 26 to purists), online, direct to consumer.

The model was different from Radiohead's. Radiohead was notable for letting the buyers set their own price. Nine Inch Nails, though, offered a nine of the 36 tracks for free, or a DRM-free download for just $5. Downloads available in high bitrate mp3, FLAC lossless, or Apple Lossless format. Instant gratification.[1]

Another $5 gets you the download plus a traditional physical two-CD set mailed out in early April (plus shipping & handling, which brings the total to about what a new CD costs in a store). Also like Radiohead, NIN offers a couple of expensive special edition versions of the physical CD.

So how did this experiment go? According to Reuters, Nine Inch Nails grossed $1.6 million from 800,000 transactions[2] in its first week.

The consumer benefit is clear: Ghosts cost me a third what I would have paid in a record store, great quality, yet has no DRM keeping me from playing it on my iPod, or Christian's Cowan A2, or anywhere else I want.

And Nine Inch Nails took home every cent of their gross, less only payment processing costs and bandwidth for downloads. Under the traditional music industry model, with the same sales, the band would have taken home at best $280,000[3], less taxes, then split equally[4] among the seven project members... call it $20,000 each. You can make more than that working at McDonald's.

The traditional music industry. Completely cut out.

As I wrote last time:
“No wonder the music industry is so terrified of digital distribution.”

Footnotes:

[1] Well, if you could get it. Their servers nearly collapsed under the load, and after buying a physical copy and trying to download it, I ended up just getting my digital copy from a torrent. Piracy as fulfillment of a legitimate transaction — how ironic. [up]

[2] 800,000 transactions includes free downloads. NIN hasn't released a breakdown of how many of these transactions were paid, and the relative proportions of $5 downloads, $10 albums, $75 special editions and $300 limited editions. If everyone chose $5 downloads, that would be 320,000 paying buyers. Given that last year's Year Zero release sold 187,000 copies in its release month, I suspect the actual number of paying buyers is far lower, and much of that revenue is from people that bought physical CD's and special editions. [up]

[3] Based on Toni Braxton's take of $0.35 per album, which left her bankrupt in 1998 despite selling $188 million. Who made the money there? Not Toni. [up]

[4] Admittedly, it probably isn't split equally. The project had three main musicians, several contributors, and a visual artist doing the artwork, photography and physical materials design. For simplicity I have ignored the relative values of their contributions. [up]