With 2008 finally biting the dust, it is time for a little review.
CD sales plummeted over the past three years, from 553.4 million in 2006 to 360.6 million in 2008. MP3 (digital)sales grew from 32.6 million to 65.8 million during the same time period, according to SoundScan. (Remember one "digital" album is equal to 10 individual downloads).
Although legal downloads have more than doubled over the last 3 years, they are still a small fraction of the illegal download and music sharing that takes place on the internet.
THE BASIC ECONOMICS OF DIGITAL MUSIC POINT TOWARDS MUSIC BECOMING "FREE".
The cost of production is dropping every year. Anyone with a computer today can now create their own music (there are plenty of scary examples of this on Youtube and other places). A whole generation of music listeners now expect the music to be free, or almost-free.
As Stephen Levitt said in FREAKONOMICS, "regulation of a legal market is bound to fail when a healthy black market exists for the same product". This is why the RIAA law enforcement has not worked. It is the same reason why gun control does not work. You can pass all the laws you want, but a person that wants a gun can always get one on the black market. Even if the US passed a law to make no new guns as of tomorrow, there is an OCEAN of available guns right now that people can get if they want one. It is the same with free music on the internet.
SO then the BIG question is, How do I make money in a FREE MUSIC market? The answer is found in many places: viral marketing, cross promotion, doing it yourself so you have little or no overhead (like Nine Inch Nails and Radiohead), or be the person that runs the "tollgate", like Myspace Music. The concept there is that while people stream the music for free, Myspace makes it up in advertising on their website.
We are in a brave new musical world, and I can only hope that those of us that believe in quality will keep up the fight to bring great music into the world, where basic economics does not seem to value our art.