Earlier this year, Nine Inch Nails received a lot of attention for its innovative release of the album Ghosts I-IV. When releasing the album, it provided a free 9 track download. At the same time it offered a range of premium products. They ranged from the $5 36 track download, to the $300 limited edition super deluxe album.
The point of this post is not to give a detailed account of the sales numbers. Rather it is an attempt to split this example into freemium numbers that can be used as examples for people considering similar models.
Numbers for Ghosts I-IV during the first week after the release
Available products
Free download with 9 tracks
$5 download with 36 tracks
$10 CD set
$75 Deluxe CD set
$300 ultra deluxe CD set (limited edition, only 2.500 copies)
Total transactions within the first week 781,917 for revenue of $1,619,420
If we take away the 2.500 super deluxe albums, that leaves 779.417 transactions and $869.420
A presumption is that the lion’s share of the rest is the free download and the $5 36 track download. A previous album by lead singer Trent Reznor, was released for free, asking the users to pay if they wanted. Of the people that downloaded this album, about 20% paid.
For this calculation we presume that the paid download percentage was a bit lower than 15%.
This makes the $5 download account for $584.563 and leaves 284.857 from the other two products.
It would be 3798 deluxe albums or 28.486 CD sets. If we split the revenue into two, we presume that for every 7.5 CD sets, there was 1 deluxe set sold. It is then 1899 deluxe sets and 14 243 CD sets.
After adjusting the numbers to make it fit, it looks like this
Free download 646362
116.913 $5 downloads or a conversion of 18.1%
14.243 $10 CD sets or a conversion of 2.2%
1.899 $75 deluxe set or a conversion of 0.3%
$300 Ultra deluxe 2500 0.4%
Extras:
Besides this, there is the revenue from concerts, merchandise and CDs sold through the normal channels.
These were just the numbers for the first week. Would the relation between paid and free download continue to be the same?
In order to compare this approach with the normal way of releasing albums, we would need a profit margin for the different product and a closer look at the extras, as well as an educated guess of how many albums they could have sold using normal distribution methods.
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Photo: Tim Snell
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8 Comments
Well done analysis, but I think you could further it by providing more insight on how the free downloads could eventually be converted into real revenue. You can estimate that with Radiohead’s “In Rainbows” that it was downloaded illegally by over 5M people. If even 1% of those people become real fans and pay for a concert ticket in their lifetime they can make quite a bit of money. I think this is where the power of freemium lies.
I think you are right about the need for more insight about the “extras”. By this I mean the benefits that you can not measure directly. The argument is that it is profitable even without this extra. Yet the benefits that can not be calculated directly are very valuable, I will attempt to illustrate these more clearly.
If you have any ideas to how this could be shown in a nice way, I would love to hear it.
How would this type of model apply to a new artist?
@Ryan
The principle used is the same. You let people have your recordings for free, in order to make money from other things.
Radiohead’s management talks about how the attention from the “pay what you want” release helped them to play to 60,000 fans in San Francisco where they previously played to 25,000.
With a new artist a free mp3 might help you play for 60 people instead of 25. The ideas is that you give away what is free to reproduce, the mp3. While at the same time charging for what is scares. This could be concerts, t-shirts, special birthday versions of a song for the girlfriend or something completely different. This principle is the same for big artist and new artists. The scale is just a bit different…
I just published a post on how to create a music freemium from scratch
http://www.freemium.org/uncategorized/creating-music-freemium-scratch/