Radio-heady business move

The group self-released its new album, In Rainbows, on its Web site yesterday. This alone is not news, but as guitarist Jonny Greenwood announced last week, customers on the site are allowed to set their own price for the album.,Since the dawn of the MP3, the record industry has been in a state of decline, and the alt-rock group Radiohead is about to make those troubles a lot worse.

The group self-released its new album, In Rainbows, on its Web site yesterday. This alone is not news, but as guitarist Jonny Greenwood announced last week, customers on the site are allowed to set their own price for the album. For the record industry, this is a bad omen.

“If the best band in the world doesn’t want a part of us,” an executive at record label AR said, “I’m not sure what’s left for this business.”

Though the release of In Rainbows could prove to be a massive blow to the industry, it will transform-for the better-the listening behavior of music fans everywhere.

In Rainbows was written and recorded under a shroud of secrecy, and with the growing hype around its release, it was looking like a surefire hit. But the big labels failed to take Radiohead’s contractual status into account, since its EMI contract expired following the release of the group’s sixth album, 2003’s Hail to the Thief.

As a result, when the members of Radiohead made In Rainbows, they did so on their own dime, as the sole decision-makers and distributors of the record.

Since the explosion of file sharing in the late ’90s, the Recording Industry Association of America has consistently acted to combat rampant, illicit file sharing. The standard argument is that downloading damages smaller acts. On average, the sale of a CD only brings a 10 percent royalty to the artists. Although artists may lose these meager profits, offering their music free online creates new opportunities.

Bert Holman, manager of The Allman Brothers Band, said whatever bands give away “will help them get even bigger as a live act. The free record markets the tour, and a lot of other revenue streams [such as merchandise].”

This applies not only to established mega-groups like Radiohead, but to lesser-known artists as well. Take, for instance, an underground band based in Boston. Average fans would hesitate to shell out $15 to see this band live if they have not heard any of the material on CD. But if those fans have access to the songs for free online, it may encourage them to front the money for a ticket. This same underground band makes up the lost revenue for the CD at their live show, where-lest we forget-a much greater share of the profits reach the band’s pockets.

“It’s my personal belief that Sony BMG is half the size now as it was in 2000,” said Jennifer Pariser, Sony BMG’s head of litigation. “When people steal, when they take music without compensation, we are harmed.”

The fear in the voices of big-label executives is almost audible. None of their legal wranglings or threats of litigation have helped; from 1999 to 2003, album shipments dropped 20 percent. And with yesterday’s release, Radiohead has become-in the eyes of the bigwigs-public enemy number one.

To see this dispute for what it is, the battle lines must be drawn very carefully. As much as Sony and EMI would have us think otherwise, Radiohead and its fans are on the same side. The band wants to make music, the fans want to listen to it. Standing in between them is Big Music.

Radiohead’s new distribution formula is a luxury for the group-one of the most popular bands in America. But this will benefit smaller acts as well, by shifting the revenue focus from physical music, where the label rakes in the money like it’s falling from the sky, to ticket sales, where the band benefits.

If this model proves successful, it’s only a matter of time before other artists start bypassing labels altogether. For an industry that’s been shrinking for a decade, the RIAA cannot afford to lose the investments that made their fortune: the artists themselves.

Guy Hands, owner of EMI, wrote a prophetic e-mail to his staff last week.

“The recorded music industry[…]has for too long been dependent on how many CDs can be sold,” the e-mail said. “Rather than embracing digitalization and the opportunities it brings for promotion of product and distribution through multiple channels, the industry has stuck its head in the sand.”

Unfortunately, major labels have either been incapable or unwilling to wrench their heads free. Maybe now, in the post-In Rainbows music industry, they’ll start listening.