How Radiohead’s Business Model Shook Up the Music Industry

Editor’s note: The following is an excerpt from Greg Kot’s new book, Ripped: How the Wired Generation Revolutionized Music (Scribner, $25). Ripped tells the story of a new grassroots music industry, created by the laptop generation, with the fans and bands in charge. In this excerpt, Radiohead reinvents the way in which it distributes music directly to its fans.

Whenever he considered the possibility of Radiohead going into business for itself, guitarist Jonny Greenwood got a little queasy. “It makes me think we’re gonna be sitting in endless business meetings talking about how to do it off our own backs, rather than sitting in studios recording music.”

But Radiohead was genuinely unsettled by what it saw as the major labels’ inability to adapt to the marketplace. The long lag time imposed by the majors between finishing an album and actually releasing it to set up a proper big-budget marketing campaign was particularly irritating. The band appreciated that its fans were almost ridiculously vigilant. As soon as word would get out that Radiohead had finished working on an album, the Internet began to buzz with anticipation. A leak of the new music would inevitably follow, and Radiohead fans were soon sharing the music and debating its merits.

Inevitably, Web sites would jump in with their critiques of the still-unreleased work.

It was flattering and yet frustrating for the band; increasingly, they sensed the problem was not with the fans, but with their label’s inability to keep up with how fans were consuming music.

By the fall of 2007, Radiohead had a new album ready to go, but still hadn’t pulled the trigger on any kind of record deal. It decided to release the album anyway, through its Web site. On Oct. 1, Jonny Greenwood posted a terse announcement on “Well, the new album is finished, and it’s coming out in 10 days. We’ve called it In Rainbows.”

So much for the big marketing plan. In the land of the major labels, Greenwood would’ve been drummed out of the public-relations academy for his utter offhandedness. For an artist of Radiohead’s stature, it was customary for a big label to plot out the details of an album months in advance, to line up shelf space at retail stores, programming at commercial radio, and full-page ads and interviews in Billboard, Rolling Stone, and the usual print-media suspects. But for the first time in its existence, Radiohead had no such constraints. It could now effectively function as its own record company, record store, and distribution service rolled into one — at least temporarily. So Radiohead instructed its fans that on Oct. 10, it would provide an access code to a digital download of the new album to any customer willing to part with an e-mail address.

The price was left to the customer’s discretion, the virtual equivalent of a giant tip jar.

“It’s up to you,” the checkout screen read for preordering the 10-song disc.

Also available to order was an expanded, physical version of the album, to ship two months later. Priced at the U.S. equivalent of $81, it would include an 18-track double album packaged in both CD and vinyl versions, with lyrics, artwork, and photographs in a hardback book and slipcase.

Radiohead’s distribution strategy for In Rainbows reduced the decade-long debate over Internet downloading to a single, deceptively simple question: “What’s this piece of music really worth to you?” It was a question that respected the intelligence of the potential buyer, a question that bristled with moral, ethical, economic and aesthetic considerations. And yet it was a question that could be answered with a simple mouse click, in prices ranging from $0.00 to $99.99 (the order form didn’t accommodate three-digit dollar figures).

It was a brilliant move made even more potent by its timing. Only a week before, a federal jury in Minnesota had awarded the record industry a $220,000 judgment against Jammie Thomas for the crime of downloading 24 copyrighted songs and making them available for file sharing. Thomas was hardly alone. At the very moment her verdict was being read, more than 9 million consumers were sharing music files around America, according to media management company BigChampagne.

As one of the more marketable names in the business, Radiohead was in a position where it didn’t have to give away anything. It had the cachet to charge $10 or more for its music, and rest assured that most of its fans would gladly pay. But it clearly wanted no part of a music industry that labels its own customers as thieves. By declaring, “It’s up to you,” Radiohead made it clear whose side it was on.

The Internet exploded with Radiohead-related chatter. In the three days after the announcement,, a search engine that reports on daily blog activity, showed more than a 1,300 percent increase in the number of posts mentioning the band.

The behind-the-scenes mechanics of the deal were intriguing, all the more so because Radiohead really wasn’t interested in talking about them — perhaps because it might’ve appeared unseemly to gloat. The band stood to profit handsomely from any paid download.

What’s more, they didn’t have to share the money with any middlemen.

Ken Waagner, the tech guru for Wilco, estimated that Radiohead spent $5,000 to $10,000 to process the flood of orders and downloads on its Web site. Those distribution costs are minimal compared with what pioneers such as Prince faced a decade ago when fans ordered CDs from his Web site. Rather than e-mailing a code to customers leading them to a download page, Prince had to manufacture, package, and ship CDs, and struggled to keep up with demand.

Prince, like Radiohead, was able to pull it off because he had a large fan base for his music built up over years of promotion and marketing by a major label before he went into business for himself. This factor often was overlooked in media coverage of Radiohead’s new business model, but it was critical to its success.

“Radiohead’s developed a pretty good brand name over the years,” Allman Brothers Band manager Bert Holman says.

“There’s artistic merit, but they also had a major label doing a lot of marketing for them. They’re in a position where, of course, they can do something like this. And so could a few others — U2, Pearl Jam, Dave Matthews. These are bands that benefited from the old system. But it’s not really applicable to reinventing the music business.”

Radiohead didn’t want to lead a revolution. Its goal was far more modest: to leak its own album, give fans a taste of the new music, and invite them to buy the sonically superior physical product once it became available in a few months. If the band screwed up, it was in offering In Rainbows in the form of relatively low-fidelity 160 kilobits per second MP3s.

A year after the release of In Rainbows, the big numbers started to roll in. The album had sold 3 million copies, including downloads from, according to the band’s publisher, Warner/Chappell.

The sales from the band’s Web site alone exceeded the total sales for the band’s previous album, Hail to the Thief. The figures included 100,000 limited-edition box sets, sold at the U.S. equivalent of $81 — an $8 million haul, with the band keeping most of the profits. The publicity windfall helped ensure one of the most successful tours of 2008, with the band playing to 1.2 million fans.

It was an impressive accomplishment, if only an intriguing first step in a new direction for the business as a whole. This revolution, as successful as it was, could have used a few tweaks: the low-bit-rate digital release was slipshod; after two months, the Radiohead Web site stopped offering the name-your-price MP3 files; and the band ended up tying its fate to a traditional record label (albeit an independent one) rather than pioneering a new marketplace dynamic.

Perhaps that was too much to ask of any band.