Capturing The Demand Curve

Following Radiohead’s lead, Nine Inch Nails today announced their new album available direct from their website. They also followed Radiohead into the world of flooded servers. I was pretty much shut out from the NIN website all morning.

In the label-less fashion of self-release, NIN has upped the ante with — count them — five different offerings at five different price points. All the way from FREE to the $300 ultra-deluxe package.

NIN is following classic economics by trying to capture as much of the demand curve as possible. Those few die hard fans willing to shell out $300? Check. How about $75? Check. $10? 5$ Nothing? Check. Check. Check.

It’s smart. But a bit complicated. The more points along the demand curve one captures, the greater the profits. But it isn’t all about the profits.

From the artist viewpoint, there are a few priorities:

1. Make money
2. Get music into the hands of fans
3. Don’t rip-off the fans

I’ve simplified these three priorities and they often conflict with one another. It’s the nature of the beast. After all, making money is critical and artists should be compensated for their art.

Here, NIN is not only getting compensated for the music but also for the production and distribution risk as well. The retail risk. They (smartly) mitigate as much of that as possible with the May 1st ship date. By then, they will have an excellent idea of how many CD and deluxe versions to produce and lessen the risk of getting stuck holding unsold inventory.

By offering a taste for free, NIN gives the fans something and follows smart marketing. Samples work if the consumer enjoys the sample. But enjoyment isn’t enough. The consumer must also have some value associated with it. At $5 for the digital download, NIN is offering the new album just slightly above the STEAL or BUY equation and should see some decent volumes with the reasonable price. Listeners make up the vast majority of music consumers. They don’t read liner notes or alphabetize their CD collections. They don’t buy CDs. They want songs in their iPods, nothing more.

The other offerings are for the collectors and audiophiles, for those who lovingly care for and display their titles, who demand more than a 192kbs MP3 file and consider compressed music to be the realm of the great unwashed. They’re loyal and they deserve a high quality product and are willing to pay for it. Kobe steak versus ground chuck.

NIN’s new offer satisfies the three artist goals. Free samples show respect for the fans while the different price points offer fan choice. I think the ultra-deluxe edition is a little high priced but this is the wild west and maybe the Make Money angel shouted out the Don’t Rip Off The Fans angel on that one. The signature is a nice touch though and come July, Ebay resale prices will tell more of the story than I ever could.

Self-release with a digital/physical strategy is proving to be the future and it’s one that makes it easier for the artist to adhere to those three basic goals. But it certainly is no cake walk. Server capacity and other technology issues should be ironed out before the announcement, not after. The pendulum is swinging quickly now and artist control over their work now includes distribution, once the realm of the major labels.

Capturing the demand curve is important but not as important as the third artist goal: Don’t Rip Off The Fans. NIN’s exploration into the self-release world seems a bit too complicated with the five price points but it’s the smart move. There will be more of these announcements and artists and consumers alike will explore the different points of the demand curve, itself a constantly shifting equation.

While music revenue declines into the abyss, record labels look like the ever weaker link. Even in the darkness of declining revenue, artists can take some solace in the fact that they can control their product more completely than ever before: they can release it when they want, how they want, and for whatever price(s) they want. With that control comes risk and responsibility. So far, the two biggest movers, Radiohead and NIN, have done a great job respecting the consumer even if they’ve screwed the pooch a bit on the execution in terms of technology and distribution.

It will only get better — for the major artists – from here.