Chuck Klosterman - Anyone Seen My 4.2 Billion

Chuck Klosterman just wrote a great article for Esquire Magazine on the decline of the music industry. Read it below.

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. Gander On! for the rest.

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?

When the Associated Press did its (now annual) story about How the Music Industry Is Failing this past January, it tried to answer my question with one sentence: "The recording industry has experienced declines in CD album sales for years, in part because of the rise of online file-sharing, but also because consumers have spent more of their leisure dollars on other entertainment, like DVDs and video games." This is a rational explanation supported by the precipitous commercial rise in both idioms. (Video-game revenue has more than doubled since 2000, and DVD sales grew from $2.5 billion in 2000 to $23.4 billion last year.) The only problem is while CDs, DVDs, and video games are physically similar, and they're sold in the same outlet, the experiences they offer aren't logically connected. I don't see why not having to pay for a Band of Horses album would make a person any more likely to buy a copy of Knocked Up, as opposed to buying four gallons of gas or a pair of sunglasses or a turtle. I don't think young people swap out items in their "leisure" budget that explicitly. What seems more likely is that this extra $4.2 billion -- unequally distributed among all the music fans who didn't pay for music in 2006 -- entered the overall economy in lots of disparate ways. And while we'll never know exactly where all those bones disappeared, my specific theory is this: A lot of the money not spent on music in the twenty-first century is being used to pay off credit-card debt that was incurred during the nineties. In other words, not paying for In Rainbows today is helping people eliminate the balance they still owe for buying Mellon Collie and the Infinite Sadness when they were broke in 1995.

During the early eighties, it was difficult for college kids to get credit cards; at the time, parents still needed to be cosigners. But when that policy changed in the early nineties, it instantly became effortless for any slack-jawed student to get a credit card. Subsequently, the percentage of young adults (ages eighteen to thirty-four) with credit-card debt increased 5.6 percent from 1989 through 1998. But after 1998, it started to decrease; by 2004, it was lower than it was in 1989. Now, there are myriad reasons why this happened, but here is one potential factor: Napster -- and the entire file-sharing era -- launched in 1998. It seems entirely plausible that the money college students saved by stealing MP3's played a critical role in paying down whatever they owed on Visa cards they never should have applied for in the first place. I suspect that if Shawn Fanning had pioneered a safe, socially acceptable way to electronically shoplift from Target in 1997, people would have jumped on that bandwagon instead.

Whenever writers try to explain the collapse of the music industry, they inevitably blame the labels themselves; they point out how wasteful and inefficient the corporate structure was at places like Elektra and Chrysalis, and how unfair it is to charge kids so many dollars for a disc that costs pennies to make, and that modern consumers have come to the realization that "music longs to be free." This may all be true, but I'm not sure it's a viable explanation for things like huge layoffs at Def Jam. Lots of industries succeed despite being poorly modeled. What happened is this: Young people needed more money to pay for their rising levels of self-imposed debt, so they unconsciously gravitated toward the first technology that provided a cost-saving alternative. Because four-minute digital-song files are relatively small (and thus easily compressed), ripping tracks for free became the easiest way to eliminate an extraneous cost. It wasn't political or countercultural, and it had almost nothing to do with music itself. It was fiscally practical. It was the first, best solution.

People didn't stop buying albums because they were philosophically opposed to how the rock business operated, and they didn't stop buying albums because the Internet is changing the relationship between capitalism and art. People stopped buying albums because they wanted the fucking money. It's complicated, but it's not.