Radiohead & the Point of Tipping
posted by Frank Pasquale
Radiohead has adopted a “public radio” funding model for its new album, allowing downloaders to “pay what they want” for it. A few notes on the way to an observation:
1) Not pure altruism: Tyler Cowen noted on a podcast that the band did demand a minimum transaction fee. Geoff Manne observes the data dividend:
Here’s what else they get: An excellent mailing and e-mail list. To buy (or receive gratis) the album from the website one must enter name, email (and no cheating, since download codes are sent via email), address, cell phone number. . . . Anyone see mass text messaging in Radiohead’s future?), etc. For Radiohead, this is a valuable list, I imagine. It may also be valuable to any number of direct marketers and online advertising companies.
Given that the band may have only made a couple bucks per CD under standard record industry contracts, it may have been sacrificing little with the new minimalist marketing schemes.
2) The Point of Tipping: Since the payment to Radiohead was voluntary, is it a tip? Eduardo Porter says yes:
[A]bout 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?
Confirming this point of view, Greg Mankiw says “we economists don’t understand tipping.” But economist Robert Frank offers a pretty compelling explanation in line with other Darwinian dimensions of his thought. Here’s an excerpt from a recent book of his that addresses the point of tipping:
Traditional rational choice theories confront a painful dilemma. Without making specific assumptions about people’s goals, they cannot generate testable implications for observable behavior. Most rational choice models thus assume that people pursue narrowly selfish goals. Yet people make anonymous gifts to charity, leave tips at restaurants on interstate highways, vote in presidential elections, and take a variety of other costly actions with little prospect of personal gain. Some analysts respond by introducing tastes for such behavior. But if the list of goals is not circumscribed in some way, virtually any behavior can be rationalized by simply positing a taste for it.
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Darwinian analysis offers a principled way of resolving this dilemma . . . .Evolutionary models view our goals not as ends in themselves, but as means to acquire the material resources needed for survival and reproduction. In this framework, we are free to offer a “taste for cooperation” to explain why people cooperate in one-shot prisoner’s dilemmas, but only if we first can explain how having such a taste might help a person acquire the resources needed to survive and reproduce. I have argued that cooperation in one-shot prisoner’s dilemmas is sustained by bonds of sympathy among trading partners.
Frank has a very interesting chapter describing tipping as a behavior designed to reinforce our virtuousness. Like Arisotle or Dewey on “habit,” he sees exercise of moral action in small contexts the key to assuring it in larger ones (and gaining a reputation for doing so). Tips may make little sense in one-off situations, but the repeated reinforcement of trust-building norms gradually shapes a self that does good voluntarily.
3) A Tipping Point? So will many bands follow Radiohead’s lead? Tyler Cowen is skeptical; he suggests that only a band already buoyed by label promotion can afford a “pay what you can” model. He also claims that the success of the experiment here hinges on its novelty and uniqueness. If everyone did it, the requests for tips might become as grating as a stream of supplicants.
I find much insight in economic perspectives on the development of the music industry, but today’s technological changes may be so epochal that old formal models contribute little to our understanding of the future. Perhaps historical approaches should be consulted. Michael Carroll has studied the development of copyright in music and offers these counterintuitive findings:
Ironically, although music publishers and recording companies are among the most aggressive advocates for strong copyright in music today, music publishers in eighteenth-century England resisted extending copyright to music. . . . . By focusing attention on this understudied episode, this Article demonstrates that the concept of copyright was originally far more circumscribed than it is today and that music – which currently is treated as core copyrightable subject matter – presented a difficult case. A number of audiences will benefit from a better understanding of the struggle over music copyright, including scholars who advance general theories about the evolution of property rights and policymakers seeking to place the current disputes over music copyright in historical perspective.
The question of copyright and music industry “business models” may ultimately need to be folded into a larger discussion of cultural policy. What should be the balance of for-profit and non-profit cultural production? Is perfected copyright enforcement worth its cost in privacy? And how are other countries dealing with these dilemmas?
Cowen begins to answer the first question in his thought-provoking book Good and Plenty:
[S]ignificant questions concern the use of our tax system to support nonprofits, creating a favorable climate for philanthropy, the legal treatment of the arts, the arts in the American university, and the evolution of copyright law. I also seek to recast the debate over direct funding of the arts. . . . [F]ruitful inquiry involves what general steps a government can take to promote a wide variety of healthy and diverse funding sources for the arts. For instance should we look more toward direct subsidies or indirect subsidies?
I look forward to more work in this vein, especially as we more clearly recognize the subsidy-like character of copyright.
October 16, 2007 at 12:22 am
Posted in: Culture, Cyberlaw, Economic Analysis of Law, Intellectual Property, Philosophy of Social Science
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Responses (5)
Drew - October 16, 2007 at 10:13 am
Since no payment was required in the first place, wouldn’t it be a donation, not a tip? It might be a distinction without a difference, but a tip seems to be extra money on top of what you’re already paying, while a donation is money that you didn’t have to give at all. When you go to a museum that is “free,” nine times out of ten they ask for a donation. This seems similar.
Drew - October 16, 2007 at 10:15 am
Scratch that comment.. this is why it’s useful to actually read the linked articles.
Neil Richards - October 16, 2007 at 10:39 am
Frank – it’s trendy in the era of Freakanomics to think that economics can supply answers to everything, but maybe economics isn’t the answer here or in other areas like valuing altruism, affection, love, social norms, or political and civil (as opposed to economic) rights.
The other interesting issue here is what Radiohead will do with the database. It’s one thing to use it to keep in close contact with your fans, and quite another to sell the list to marketers of other products. Not because it violates some vague notions of “privacy,” but rather as a betrayal of the trust inherent in the relationship. Neil
Bruce Boyden - October 16, 2007 at 12:23 pm
“but today’s technological changes may be so epochal that old formal models contribute little to our understanding of the future.”
Hmmm. I seem to remember lots of people saying that about Internet business models about 8 years ago.
brainwidth - October 16, 2007 at 7:39 pm
It’s not a “public radio” model. It’s in the nature of a loss leader, albeit one that the band is not likely actually losing money on. They give away for free–or whatever people are willing to pay–a low quality digital version of the album, without artwork or liner notes, while charging a premium for the boxed set coming out later in the fall. The album is, in essence, advertising for itself.
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