Blog Post

AEIdeas

I’ve written recently about recorded music sales, see CD post “Recorded music sales by format from 1973-2015, and what that might tell us about the limitations of GDP accounting.” This post is an update, with the following comments:

1. The top chart above show annual recorded music sales in the US from 1973 to 2015 based on data from the Recording Industry Association of America (adjusted for inflation in 2015 dollars) and estimated 2016 sales based on revenues for the first half of this year. Between 1973 and 1999 when music sales peaked, revenue from recorded music almost doubled from $10.7 billion to nearly $21 billion. Estimated sales this year of $6.7 billion will be almost 68% below the 1999 peak, and sales have been below the 1973 level in each of the last 8 years since 2008. Considering that the US population has increased by 53% since 1973 (and by 112 million), music sales on a per capita basis this year will be nearly 60% below the level in 1973! That’s ironic and counter-intuitive, since more music is available today than at any time in history!

As I wrote before, when measured by final sales of recorded music (and adjusted for the population), it would look like the “music well-being” (and “music standard of living”) of Americans was lower today than ever before. And yet, most Americans would probably agree that their access to music today is greater than ever before, and their “music well-being” (and “music standard of living”) is very likely at an all-time high – in direct contradiction to what recorded music sales revenues and standard GDP accounting would tell us.

2. The second chart above shows the same annual sales revenue from the top chart, but the annual recorded musics sales are broken down by format. From the 1970s through the mid-1980s, LPs captured the largest share of music sales, but then cassette tapes were the dominant format from about 1985 to around 1990 when CDs took over as the most popular music format. CDs remained the dominant format until around 2011 when CD sales represented less than 50% of the market share for the first time since 1989. Even in 2015, CDs represented the largest share of music sales by individual format, although CD sales were only 22% of total revenues last year – the lowest market share since 1986.

Starting in 2004, downloaded music sales first appeared in the RIAA annual sales data following the launch of Apple’s iTunes Music Store in 2003. By 2015, downloaded music represented about one-third of all recorded music sales. In all of the years from 2004 to 2015 sales of single song downloads outpaced purchases of downloaded albums. In the earlier years like 2004-2007, sales of downloaded singles were double (or more) the sales of downloaded albums, possibly because consumers were still buying CDs in large numbers to get entire albums of their favorite music. By last year though, sales of downloaded singles ($1.23 billion) were only about 12.5% higher than sales of downloaded albums ($1.09 billion).

In 2005, the category “Paid Subscriptions” first appeared in RIAA’s annual sales, following the launch of satellite radio stations XM Radio and Sirius Radio several years earlier (I’m assuming). By 2015, that category of music sales represented 17.4% of annual sales, and includes paid subscriptions to Pandora and Spotify.

3. The bottom chart displays what might be one of the most important and interesting trends in recorded music sales — the sharp decline in the share of music sales represented by physical formats (CDs, tapes, vinyl, DVDs, videos, etc.) from 100% in every year from 1973 to 2003, to about 50% by 2010, and all the way down to a historic low of 20% for music sales during the first half of this year. That’s an amazing transformation of music formats in just a short period of time, and reflects the rise and popularity of album and single downloads, paid subscriptions and on-demand streaming. As Morganovich wrote in an email, “I wonder if there has ever been such a rapid drop-off in any consumer category in such a short period of time? Physical music media were so pervasive for so long, and then, poof, gone in a decade.”

Bottom Line: The charts above of recorded music sales over the last five decades highlight some important economic concepts: innovation, technology, creative destruction, entrepreneurship, and consumer sovereignty, which all work together to improve our lives and standard of living. In terms of “music utility,” “music well-being,” and “music standard of living” Americans are better off today than any time in history. More music is more available today than ever before, and it’s cheaper, more abundant, more accessible and more convenient that ever. Great stagnation? Not for music…..