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Music to Your Ears

by on November 24, 2019 5:00 AM


By Judy Loy,
ChFC®, RICP® and President of Nestlerode & Loy, Inc.

Since I was young, I’ve enjoyed music. I love almost all music and my favorites go in waves. When I was young, I listened to what my parents listened to: country music. We listened to the classics like Barbara Mandrell, Dolly Parton and Ronnie Milsap. My first concert was Kenny Rogers. As I grew, I enjoyed “Solid Gold,” which featured the current top songs. They were pop or disco. Did the Solid Gold dancers come to mind? Then I hit my pre- and teen years and the Second British Invasion began. I had a huge crush on Simon LeBon and had every vinyl record of his band, Duran Duran. From there, I listen to everything: pop, rap and rock. I have Sirius XM in the car, and I switch channels constantly through different types of music. Foo Fighters continue to be one of my favorites and the best concert I have seen. This year, I heard the top 1,000 country songs of all time on XM. It took me back to the beginning and I started listening to new country music. I love it.

Just like my musical tastes, a lot has changed in the music industry through the years. When I first listened to music, I would throw a vinyl record (LP) on and listen to it from start to finish. The album was king. Album sales in 1978 were $14.6 billion, with 63.7% coming through sales of LP/EP or vinyl. (All data on music sales in this article are compiled from RIAA, the Recording Industry Association of America (RIAA), and are reported in 2018 inflation adjusted dollars.)  

In the late 1980’s, cassettes became the leading format for album sales — Anyone remember using a pencil to rewind or fix your cassette tape? — with CD sales slowly growing from 1984 onward. I remember having a cassette-to-cassette recording stereo system, where I could record my favorites from the radio, an LP or another cassette to share with friends. The best were mixed tapes for a boyfriend or girlfriend. 

Things started to change drastically in 1999 with the peer-to-peer file sharing service Napster, which permitted what was done on a small scale (me sharing a recorded cassette of music with a friend) to a large scale through the Internet. It was easier and easier to get your music for free. Of course, this didn’t work for the industry or the artist and Napster shut down the peer to peer free service in July 2001. CD sales reached their high in 1999, with sales of $18.9 billion. In that same year, music hit its peak with $21.5 billion in inflation adjusted revenue. 

It has been downhill from there. Music sales hit bottom (for now) with an inflation adjusted revenue of $7.1 billion in 2014, which is a huge drop from its heights. The makeup of the numbers tells the story. CDs made up 26.5% of revenue. Downloaded albums made up 16.7% of revenue but downloaded singles beat that by accounting for 20.2% of revenue. I can’t remember the last time I listened to an album all the way through and the numbers show I am not the only one. The new additions to the scenario are paid subscriptions (11.5% of revenue), on-demand streaming (4.2% of revenue) and SoundExchange distributions (11.6% of revenue) in 2014.

In 2018, the product that brings in the largest revenue to the music industry are paid subscriptions, which now account for 47.3%, or revenue of $4.7 billion on total revenue of $9.8 billion. 

I gave in this year and added the Apple Music family plan onto my iPhone. What did I wait for? Any music you want at your fingertips. Feel like listening to country, jazz, meditation music? Just ask. (Just don’t ask for Garth Brooks on Apple (AAPL); he signed an exclusive deal with Amazon.) Other than Garth’s, Apple has 43 million songs available and 56 million subscribers. The cost is $9.99 a month for an individual, $14.99 for a family (up to six people) or $4.99 a month for students.

Amazon (AMZN) Prime is a $119 a year service that provides free next-day or two-day delivery on many items and has over 100 million subscribers (that’s 64% of U.S. households!). If you have an Amazon Prime subscription, you also have Amazon Prime Music. It does limit members to 2 million songs.

The most well-known music streaming app and the largest streaming service is Spotify (SPOT), which has over 50 million songs and is free with ads. Spotify has 96 million paying subscribers and 170 million users overall. The free service has advertisements, you can’t skip a song and no downloads. Spotify Premium is $9.99 a month and $14.99 a month for families, the same as Apple Music.

To put this in perspective, an album on cassette used to cost $10 in 1990s dollars. Now, $10 a month will get you all the music you want. Another reason technology advances have led to lower or no inflation.  While music tastes and its distribution channels have changed through the years, we are still listening.

Nothing contained in this article should be interpreted as a promise or guarantee of earnings or investment results nor a recommendation for the purchase or sale of any security or sector. Investing involves risk.

Judy Loy, ChFCâ, is a Registered Investment Advisor and CEO at Nestlerode & Loy Investment Advisors, State College, Pa. A graduate of Penn State University, Loy has been with the firm since 1992, assisting clients with retirement planning, brokerage services and investment advice. She can be reached at [email protected]
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