When Prince released his latest album for free, many retailers where pissed as well as music industry record labels for his audacity at “undermining” the industry and value of recorded music. In response, Prince simply gave them all his royal sign. Yesterday, Radiohead announced another blow to the traditional model of making money off musicians by announcing that their next album “In Rainbows,” dropping October 10^th  will be in an MP3 format and fans can pay what they want for it…or nothing at all. This sort of stuff chaps the traditional music industry badly. So used to making money the old-school way—which often leaves little else for the band themselves—most record industry people are not willing to change.

What’s unique about this is that Radiohead no longer has a record label that they’re obligated to—their contract is over and they opted to not sign-on with anyone else, which gives them the freedom to sell their music from their website or however they’d like to. Where the money is being made today is in live music performances anyway, as well as merch sales such as sales of T-shirts, posters, CD’s at concerts, and things like sales of exclusive boxsets and artwork. Radiohead plans to offer a special edition boxset for $84 later in the month which will include 2 vinyl albums, a CD version of the new album, a 2^nd CD with “additional new songs,” and artwork and photographs of the band. And they plan to release their new CD in stores in early ’’08.

As we’ve said, by watching what happens with the music industry, you can gain insight on where things are heading with this new generation of consumers and market opportunities for small businesses in general. The fact that Radiohead is doing it themselves stands up for this generations’ ethos of DIY attitude. As the editor of Q Magazines put it, “They are the first band to put their money where their mouth is.” And of course if it all works out, you know that other bands will be doing the same—particularly large bands on the cusp of an ended contract.

While the industry of music sales is declining and going through massive changes, the lifestyle of the music industry is thriving in youth culture. As quantified in the Music sections of our recently released North American Youth Culture Study and European Youth Culture Study ’07-’08, the way young people buy music is indicative of future entertainment patterns in general. The concept of ads on TV for example, which is what most large brands know what to do when it comes to advertising, are no longer nearly as impactful on today’s youth culture as they were before because they have options to TiVo them out, download the show, or simply not watch it because they have other forms of entertainment, including creating their own. What the music industry fails to understand is that there’s a new generation of bands and consumers out there not willing to get their entertainment the old-school way.

What’s interesting about Radiohead is that it brings to the forefront the problem with many traditional entertainment businesses in general. While many industries are digging their heels in and are not willing to let go, others, particularly the bands themselves, are changing up the paradigm by creating their own new business model that leaves out the middlemen.