In October 2007, English rock band Radiohead caused a storm when it offered fans the opportunity to download its new In Rainbows album for whatever price they saw fit. Although consumers could effectively download the album for free, reports suggest it still generated more money than the band’s previous album.

The experiment sparked widespread debate about the true value of a song, but in fact the industry has been employing some novel pricing models for a while. Online-music services Magnatune and Amie Street are two examples of how consumers can influence the price of the music they download.

Magnatune was started in April 2003 and offers visitors the opportunity to effectively pay what they want for albums. Albums carry a low minimum price, but consumers are invited to pay above that. All albums are freely streamed, so it is up to the individual to decide what to pay based on how they value the album’s worth.

In the wake of a declining conversion rate between visitors to the site and purchases, Magnatune recently introduced a monthly subscription for unlimited downloads. Magnatune founder John Buckman says that despite the number of visitors tripling in the past two years, the conversion rate is five times worse.

“Compared with the first three years of operation, the rate of listeners-to-purchasers has plummeted,” he says. “From one buyer for every 32 listeners, we were getting one buyer for every 150 listeners.”

Buckman attributes this to the disposable nature in which music is now consumed. “There is so much music freely available that the days of building a music collection over time are gone,” he says. “The advantage of the subscription is that it lets people explore our music without feeling like they’re taking a financial risk with each album.”

Even the price of the subscription cost is left to the individual. “You need to pay at least USD 10 per month, but the average is around USD 14,” he says. “Since introducing the subscription, we are not only earning twice as much money, half of which is shared with the artists, but people are listening to a lot more of our music.”

Founded in early 2006, Amie Street has been making headlines with its unique variable-pricing system. Borne out of a simple idea from three university students of having customers directly influence the price of songs, it soon got the attention of the industry, attracting financing from Amazon along the way.

The price for an individual song when first uploaded to the Amie Street site typically starts at zero. It then rises according to the increased demand and purchase of the song up to a maximum of USD 0.98. Like Magnatune, all songs are downloadable free of digital rights management restrictions and anyone can upload their own music.

Amie Street’s co-founder Josh Boltuch says the concept came about because of the huge vacuum between music being acquired illegally for free and the one-price-fits-all approach of internet retailers such as iTunes. “We wanted to bring these two user groups together and make use of their shared passion for music and desire to share it with one another,” he says.

With 1.5 million songs to choose from you are spoilt for choice. To help decide what is hot and what is not, members are encouraged to recommend songs to others and are then rewarded for doing so. The more popular a song becomes after being recommended, the more credit the member receives to spend on music.

“The idea is to give members the incentive and the means to continually discover and share new music,” Boltuch says. “If you find a great new song when it’s free and recommend it to your friends, and that song continues to rise in price, you get the price difference back into your account.”

Roger Tilzey