Since the early 20th century the music industry has been wedded to selling tunes a la cart or by the album, initially on vinyl or plastic discs and, finally, through authorized music download sites. Unlike the major labels which for the most part sell unprotected CDs but encrypted downloads, Radiohead won't force a double standard. The music you download from their website will be free of "DRM" (digital rights management) which means you can do with it what you want as long as you don't sell or give it to others.
The biggest difference with the Radiohead model is that they are letting fans pay whatever they want. You can buy it for as little as one UK pence (that's about two cents U.S.) or you can pay a higher amount. My guess is that plenty of fans will decide to pay something pretty close to typical retail just to reward the band for being so kind and cool with its pricing model.
I doubt if this will become the major way that bands make money. Once the novelty wears off I'm afraid most fans are likely to low ball amounts for music they download. But it is one of many interesting ways that artists can make money besides selling plastic discs or buying into iTunes or other label-approved commercial download services.
One model is to pretty much give away recorded music and make money on merchandizing and live concerts. A number of independent artist are already doing this. They build up a fan base, reward their fans with free music and get them come to events where fans not only pay an entrance fee but go home with t-shirts and other merchandize including – believe it or not – CDs. My 21-year-old son, who is himself a musician, says that he makes a point of buying CDs from bands he loves and he loves buying them directly from the band itself rather than through a record label.
Another business model is advertising supported downloads. We've already seen this with Ruckus, that offers free downloads to college students as well as a new service called SpiralFrog which claims to have nearly a million songs for anyone willing to look at ads while they download. These services don't let you burn music to CDs but they do allow you to play them on certain digital music players with Microsoft technology that will prevent the music from playing if your membership isn't periodically validated.
I find Radioheads' timing quite interesting in that its release comes shortly after the recording industry association (RIAA) has beefed up its legal cases against music sharers including its infamous suit against a single mother who has been ordered to pay $220,000 in fines for allegedly sharing more than 1,700 music files on the file sharing site Kazaa. Radiohead's experiment also comes on the heels of a talk by Philippe Dauman, CEO of Viacom who reportedly told a gathering in Washington DC that he favors stronger DRM and legal enforcement to protect intellectual property.
While I'm not sure if Radiohead's model will work for others, I love that they're doing it. It's nice to see artists, not bean counters, taking the lead and trying something new.