Louis C.K. - New dog, old trick.
Louis C.K.’s $5 online comedy special experiment has been making headlines everywhere, so I thought I’d check it out. The experiment was simple, sell a digital video file of his stand-up comedy for $5 and see if it was capable of making a profit. The worry was that the video he was selling on his website was DRM-free and could easily be shared online and viewed for free. It turns out that while the video is available for free, about 175,000 people have decided to play be the rules and buy it to watch it. Louis expects to gain $1,000,000 before the weekend is out.
“What a surprising business plan!,” gasped the media, but this phenomena is not something totally new. In 2005, the book “Freakonomics” featured the story of a man who sells bagels on an honor system–dropping them off at offices along with payment boxes, then collecting the payment boxes end of the day. And In 2007, Radiohead released their album “In Rainbows” with a “pay what you want” scheme, where people could download their album for free and listen to it, or they could pay whatever they wanted to and listen to it. At the end of the day an overwhelming number of people play by the rules, paying for things they could get for free by dishonest means. Or in the case of Radiohead, paying for something that is free.
It seemed like a crazy idea. When Radiohead said it would release its new album, In Rainbows, as a pay-what-you-will digital download, you’d have thought the band had gone communist. After all, Thom Yorke and company are one of the world’s most successful groups — a critical darling as well as a fan favorite for nearly 15 years. They hadn’t put out a new album in more than four years, and the market was hungry for their next disc. So why would Radiohead conduct such a radical experiment?
It turns out the gambit was a savvy business move. In the first month, about a million fans downloaded In Rainbows. Roughly 40 percent of them paid for it, according to comScore, at an average of $6 each, netting the band nearly $3 million.
The Bagel Guy:
Once upon a time, Paul F. dreamed big dreams. While studying agricultural economics at Cornell, he wanted to end world hunger. Instead, after doctoral work at M.I.T., he wound up taking a job with a research institute in Washington, analyzing the weapons expenditures of the United States Navy. This was in 1962. After four years came more of the same: analyst jobs with the Bureau of the Budget, the Institute for Defense Analyses, the President’s Commission on Federal Statistics. Still, he dreamed. He had “potent research ideas,” as he recalls them now, which the Environmental Protection Agency failed to appreciate. He developed a statistical means of predicting cancer clusters, but because he was an economist and not a doctor, he couldn’t make headway with the National Cancer Institute. He still loved the art of economics – the data-gathering, the statistical manipulation, the problem-solving – but it had led him to a high-level dead end. He was well paid and unfulfilled. “I’d go to the office Christmas party, and people would introduce me to their wives or husbands as the guy who brings in the bagels,” he says. “‘Oh! You’re the guy who brings in the bagels!’ Nobody ever said, 'This is the guy in charge of the public research group.”’
The bagels had begun as a casual gesture: a boss treating his employees whenever they won a new research contract. Then he made it a habit. Every Friday, he would bring half a dozen bagels, a serrated knife, some cream cheese. When employees from neighboring floors heard about the bagels, they wanted some, too. Eventually he was bringing in 15 dozen bagels a week. He set out a cash basket to recoup his costs. His collection rate was about 95 percent; he attributed the underpayment to oversight.
In 1984, when his research institute fell under new management, he took a look at his career and grimaced. “I was sick of every aspect of the whole thing,” he says. “I was discouraged. I was tired of chasing contracts. So I said to management: 'I’m getting out of this. I’m going to sell bagels.”’
His economist friends thought he had lost his mind. They made oblique remarks (and some not so oblique) about “a terrible waste of talent.” But his wife supported his decision. They had retired their mortgage; the last of their three children was finishing college. Driving around the office parks that encircle Washington, he solicited customers with a simple pitch: early in the morning, he would deliver some bagels and a cash basket to a company’s snack room; he would return before lunch to pick up the money and the leftovers. It was an honor-system commerce scheme, and it worked. Within a few years, he was delivering 700 dozen bagels a week to 140 companies and earning as much as he had ever made as a research analyst. He had thrown off the shackles of cubicle life and made himself happy.