Anyone Seen My $4.2 Billion?

There's a lot of money out there in the economy that people used to spend on CDs. The question is, where, exactly, did it go?

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Even if you know nothing about the music industry, you probably know this: People don't buy albums anymore. Everyone is aware of this, mostly because this phenomenon is reported on constantly. The soundtrack to High School Musical was considered a commercial success by selling 2.9 million units in all of 2007; seven years before, Britney Spears was able to sell 1.3 million copies of Oops! . . . I Did It Again in a single week. That disparity should be shocking, but it isn't -- by now, anyone who (even casually) follows the music industry is inundated with similarly grim statistics all the time. Interestingly, these stories tend to make music fans happy. People hate corporate record labels and love reading about how the industry is failing. As such, the media coverage of plummeting music sales almost always focuses on how labels are losing money. But this coverage usually ignores an economic element that is less tangible but more interesting: What is happening to all the money not being spent on music?

In 1999, the total revenue from all music sales (albums and singles) was $14.2 billion. By 2006, it was barely more than $10 billion, including downloads. While considering that staggering difference, assume the following suppositions are true:

The music-buying population in 1999 wasn't that different from the music-buying population in 2006. Some people stopped buying music and some younger people started, but the overall demographic base is mostly identical in size and scope.
The quality of the music produced in those respective years was not significantly different. In other words, no one is going to argue that sales only went down because the music got worse; the public's interest in sound is static.
The price of music in stores stayed roughly the same.

This being the case, it would seem there are two elementary reasons why the decline in revenue happened: a) illegal file-sharing and b) heightened consumer selectivity. File-sharing has been written about extensively, so there is no need to readdress it here. The term "heightened consumer selectivity" is really just a manifestation of iTunes -- if someone is obsessed with the song "1 2 3 4" but has no interest in the Feist catalog, he can acquire the single for ninety-nine cents instead of blowing sixteen dollars on a full album he'd never play twice. But here's where the math gets less clear and more meaningful: These trends don't involve everyone. Your grandma is not using LimeWire. The 2.6 million people who love the Eagles are still going to Wal-Mart to buy the physical CD. In practice, it's only a select class of computer-savvy consumers who are making this dramatic revenue shift happen -- almost exclusively music fans under the age of forty who a) used to buy a few albums every other Tuesday but b) now buy virtually none over the course of an entire year. This specific underclass was the collective beneficiary of the aforementioned $4.2 billion difference from 2006; that number represents money they would have spent on music in 1999, but were able to save. So I wonder: Where did all that money go?

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