It’s been 20 years since the record industry began asking itself, “What the hell do we do now?”  And while the number of paying subscribers for streaming services is on the rise and live music ticket sales are the highest they’ve ever been, revenue streams are still much smaller than during the recording industry’s bubble of the 1990s. Total industry revenues are less than 70% of their 1999 peak, and the industry has yet to define a new label model.

If we look at the story of recorded music from the advent of the compact disc, it becomes easy to see why there was a bubble in the first place and how the music industry has come to terms with what represents the greatest value of its artists.

Netscape and Napster

On October 1, 1982, the recording industry began an unwitting transformation from a tangible goods industry to an information industry. On that day, Philips released the first audio CD, Billy Joel’s 52nd Street, in Japan. In addition to carved vinyl and magnetic tape, record companies began selling streams of zeros and ones.

The industry experienced an earnings bonanza. Consumers rushed to buy new music on compact discs and to replace many of the vinyl records and cassette tapes they already owned. Over the next twelve years, with CD sales surpassing vinyl in 1988 and cassettes in 1991, the bubble expanded rapidly.

But then, distribution caught up with the digital content revolution. The Netscape browser turned the Internet into a free distribution system, and the record industry got caught with its pants down. Suddenly, thanks to file sharing services like MP3.com and Napster, fans in large numbers saw little need to pay anything for the music they enjoyed and began sharing their high-quality digital favorites for free.

If one bookend of the recording industry is distribution, the other is production. Both collapsed during this revolution. While the the Web hammered away at multibillion-dollar distribution channels, inexpensive digital audio workstations eclipsed multimillion-dollar recording studios. It was a race to the bottom. Sure, the cost of goods sold and indirect costs dropped, but revenues plummeted so far it didn’t matter. What remained were teetering record labels, confused music executives, and undercompensated artists.

The content — making and delivering it — had been the domain of business. Now it was the domain of anyone.

Getting Ready for the Road

In the first place, the recording industry came about when technologies enabled the capture and distribution of live performances. John Philip Sousa and the Marine Band he led, for example, were known by word of mouth in the late 1800s, but relatively few people had actually heard them perform. By 1897, he and his band had recorded over 400 different titles for the Columbia Phonograph Company and had become wildly popular, making the Marine Band the first act to gain fame from this new industry.

Then, as the technology evolved, recording sessions moved into studio environments. Overdubs embellished the sound, studio hardware improved, and, eventually, the recording itself became its own art form.

Phil Spector broke through the sonic barrier of the tiny AM radio speaker with his Wall of Sound; Brian Wilson and the Beach Boys produced the technically ambitious and sophisticated Pet Sounds; the Beatles, who had stopped performing live altogether, answered back with Sgt. Pepper’s Lonely Hearts Club Band. Seminal studio works came from artists like Pink Floyd, Steely Dan, Grandmaster Flash, Run-DMC, Radiohead, A Tribe Called Quest, Beck — scores of artists who defined themselves more by what they did alone than in font of anyone.

But when the CD bumped into the Internet and digits started streaming everywhere, the industry had no financial choice but to reweigh its beginnings: the live performance.

Live Nation and the Concert Souvenir

In 2007, Madonna signed a $120 million deal with concert promoter Live Nation. The company’s new Artist Nation division would manage her touring, merchandise, and recordings (three new albums) in what would become known as a “360 deal”. These deals place a strategic emphasis on live performances. Other major acts quickly followed: Jay-Z ($152 million), U2 (around $100 million, with their music still to be released through Universal), and Shakira (around $70 million).

Today, we still can’t realistically share the experience of the arena — or the club, for that matter — with someone who isn’t there. Nothing replaces actually being at a live performance. And so in the age of Spotify, Apple Music, and Google Play, when music feels essentially free, artists capitalize best by being on stage for their fans.

In addition, unrecognized revenue streams from the platinum age of recorded music are now flowing at a record volume. Album art, liner notes, and free poster inserts have, in large part, been peeled away from the recording itself and are sold at live shows along with t-shirts and other music merchandise at levels that thwart any other category in all of licensed merchandising.

What’s next for the artist and the industry? Perhaps mixed reality technologies, like Magic Leap’s virtual retina display or Microsoft HoloLens. These technologies will do for the visual aspect of a live performance what recording technology did for the sonic one. When this happens, the good news is the industry won’t be caught off guard, having already awkwardly navigated its first digital leap forward. New art forms will emerge, just as they did with audio technologies, and hopefully, these new opportunities will put more in the pockets of the growing number of artists who deserve it.