“A less popular band would not make as much money”
This is trivially true. It is also true of recording-industry-based album releases. So it is not a specific criticism of this business model. Rather it is a fact of life regarding music: you need an audience to sell to in order to make money by selling music to your audience.
What is important is that more of the money from this business model goes to the band. So a less popular band would make more money this way than from receiving royalties for CDs, all other things being equal.
“Radiohead can only do this because they have been promoted heavily by their record label for over a decade”
Again this is trivially true. Radiohead worked very hard to build their success through the channels available. In the first half of the 1990s that was through record labels. Nowadays, it is through online networking.
What is important is that promotion is needed to build an audience. And there is no substitute for hard work and raw talent whether that promotion is through record labels or though MySpace.
“Most Downloaders Paid Nothing”
Most being 60%. So in fact just over half didn’t pay. Or, alternatively, just under half did pay, an average of six dollars each. This is much better than the O% who usually pay for unauthorized downloads.
A 40% success rate for advertising would be extraordinarily good. That is what this amounts to. Many people were buying the album unheard. Do 100% of the people who hear a Radiohead album on the radio go out and buy it? Do 40%?
I have spoken to people who downloaded the album for free then paid what they thought it was worth for a second download. If studies took account of these try-before-you-buy downloads the figures would change. Perhaps not majorly, but enough to notice.
If Radiohead had posted out CDs with invoices, played the album on the radio or on MTV or simply promoted it in the media we would be seeing headlines more like “Only 1% Of Fans Pay For Radiohead Album”.
Doing the maths shows that Radiohead still made more money for the number of albums downloaded than they would if they were receiving royalties from CDs.
So “Most Fans Paid $0 for Radiohead Album” is trivially true for some values of “most” and for some values of “fans” and if we ignore multiple downloads. But it obscures the facts that Radiohead made more money than they would have from CDs, did better than they would have from advertising, and competed successfully against no-cost P2P networks.