The music industry is not worth as much as we think, but it will be soon. Are we ready?

Music industry growth is up, but recorded music revenue is actually worth 33 percent less than it was in 1999. Be bullish but not blindfolded to inflation or disruption.

Global streaming consumption is booming right now.

Everyone cares about inflation—unless you’re talking about corporate profits or how much the music industry is actually worth. And if I had a nickel for every time I found myself in a room full of business school-educated executives declaring that the music industry is worth more than ever, well, that nickel would probably be worth a penny, actually.

There is plenty of reason to celebrate: Streaming has helped global recorded music revenues bounce back impressively from the disruptive effects of music piracy, and year-over-year (YoY) growth since 2015 is somewhere around 6-9 percent on average (depending whether or not you adjust for inflation). According to Luminate’s latest report, global consumption growth is incredibly impressive in the first six months of this year, which indicates that 2023 revenue is going to be even higher.

1.3 trillion streams—more than a third—are still coming from platforms like YouTube, which pay significantly less to rights holders. That’s called the value gap.

It’s all rosy, but when you contextualize the picture within an inflationary backdrop, it still isn’t as rosy as it was in the ‘90s. That’s important, because untempered optimism can leave everyone unprepared when the next disruption happens—and it will happen.

The cumulative rate of inflation is 83 percent since 1999.

Post-pandemic, inflation has been non-stop news. Save for promising June 2023 figures, it’s mostly been, “Eggs are expensive. Workers are getting paid too much. Fire everyone.” Curiously, concern about the effects of inflation seems to diminish when it comes to corporate profits.

In simple terms, inflation is less bang for your buck. When demand is high but supply is low or disrupted, companies increase prices, so consumers have to pay more money for the same goods. Companies also increase prices if production costs—e.g., wages—increase, passing on that cost to consumers. The irony is, adjusted for inflation, wage costs didn’t actually increase.

From December 2021 to December 2022, employer wage costs in private industry increased 5.1 percent. But adjusting for inflation, employer costs for wages fell by 1.2 percent.

—US Bureau of Labor Statistics

None of this stopped the rise of corporate profits, which grew 40 percent on average in 2021, reaching a 70-year high of $2.5 trillion in 2022. A report by the Kansas City Fed argues that price markups were a major contributing factor to pandemic inflation. Other economists argue that corporate profits are a result of inflation and not a cause.

Either way, my point here is not to call out corporate greed—however justified that might be—but to demonstrate how we tend to invoke or ignore inflation depending on what’s convenient for corporate interests. That applies to the US economy as much as it does to the global music industry.

After the introduction of Napster in 1999, the global recorded music industry lost more than 50 percent of its value over the course of 15 years. It took Spotify six years to start to turn it around and another eight to help it make back less than half of that loss.

Streaming has certainly helped buoy recording revenues, but it still has yet to match the value of physical sales. Revenue is growing 9 percent YoY (6 percent, adjusted for inflation) on average, so we should still be bullish, but we shouldn’t be blindfolded.

In line with record corporate profits in the US, global music revenue grew a record 18 percent, according to IFPI data, and 13 percent, adjusted for inflation, in 2021.

Given global music industry and inflation trends, we should expect to make back our losses by 2030, but disruptive consumption technologies do tend to come around every 10-20 years, though there may be a 5-10 year lag in adoption. So, what’s on the horizon?

Music industry disruption happens in cycles.

Music, maybe more than any other artform (but don’t quote me on that), is especially dependent on technological innovation—both in terms of creation and also in terms of consumption. When it comes to creation, every few decades or so, a new instrument or way of using audio technology spawns new popular genres. Here’s a brief, oversimplified timeline:

• 1930s-1970s: drumkit and electric guitar—Jazz, Blues, Rock, and Punk

• 1970s-1990s: turntable—Early Hip-Hop and Electronic Dance Music (EDM)

• 1990s-2020s: computers—Contemporary Hip-Hop, EDM, and Pop

• 2020-2030s: AI and creator apps—Anything

• 2030s-2040s: ?

When it comes to consumption, every decade or so, some new technology comes along and starts adding (or subtracting) to global recorded music revenues. Here’s a brief, oversimplified timeline of that process:

• 1960s-1970s: vinyl

• 1970s-1980s: cassettes

• 1980s-1990s: CDs

• 1990s-2000s: P2P sharing

• 2000s-2010s: mp3 downloads

• 2010s-2020s: streaming

• 2020-2030s: short-form multimedia

• 2030-2040s: ?

During the physical era (1960s-1990s), each new technology was additive, meaning the advent of cassettes only contributed to the global revenue that vinyl generated, as did CDs. Creative destruction¹ characterized the transition to the digital era (1990s-2000s), but we’re finally back to a point where new technologies may serve to supplement current technologies and not subtract from global revenue.

For the first time ever, we’re also at a point where music creation is close to being fully democratized. From Boomy to BandLab to TikTok’s AI-powered Ripple and Spotify’s purported creator tools, the music industry is headed into a world where you don’t necessarily have to be a musician to create, upload, and make popular music.²

Couple that huge creator population with short-form consumption, and you get unprecedented engagement. At the end of the day, the strategy is volume: billions of music creators + billions of music consumers = many more billions of dollars. It’s likely to work in the immediate term, bringing us to an actual new peak in global recorded music revenue—but, like Yeats’ gyres³ or Yeat’s minions, creative destruction is always on the horizon.

Information is abundant, and time is not—but that doesn’t mean we should only see the trees. The proliferation of information should help us see the forest.

1. Creative destruction, also called Schumpeter’s gale, is the process of industrial destruction and regeneration through innovation.

2. You already don’t have to know how to write well to have a successful blog or how to adjust a camera’s aperture to make money off of posting photos.

3. “Things fall apart; the centre cannot hold.” You know, that phrase that everyone uses for their books or songs to the point of cliché. It comes from the W.B. Yeats poem “The Second Coming,” which draws on his belief that history happens in regenerative cycles, or gyres, as he called them.