What the Music Industry and the Credit Crisis Have in Common

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I stumbled on an interesting animation that attempts to explain the United States’ ongoing credit crisis in easily understood terms. It’s a great video, which you can see in its entirety here.

At a certain point in the video the narrator begins to explain the problem of sub-prime mortgages. Basically, the banks and investors were getting so rich buying and selling huge groups of mortgages that they began running out of qualified home buyers. But the scheme was working so well that they weren’t willing to give it up. Banks began giving out mortgages to unqualified buyers without any of the safeguards they used to require – down payments, good credit, etc. Meanwhile, house prices continued to rise. Eventually, these unqualified home buyers ended up getting in way over their heads and couldn’t repay their loans which resulted in a huge number of foreclosures. The bank’s revenue dried up, investors weren’t paid back and eventually everybody was so broke that no one could get a loan. A vicious cycle was born.

The video explains the situation much better than I, but you get the idea. As I listened to all of this I was struck by the parallels that can be found with the current state of the music industry.

Think about it:

For years the recording industry was getting rich selling vinyl and later CD’s. The business was so lucrative that eventually they began to run out of quality acts, but CD sales had to keep rising. So they begin to take middle of the road talent (or simply manufacture their own) and hype it so big that it had to sell. Eventually these acts fizzled out or listeners simply moved on and more and more acts had to replace them. Meanwhile, the price of CD’s kept on climbing higher and higher. Before long the listeners realized that they were paying way too much for way too little and began searching for cheaper ways to get better music. File sharing takes off and CD sales plummet.

Of course, instead of recognizing the root issues at the heart of the new ‘crisis,’ the industry retreats deeper into the safe-but-mediocre product it had been pushing for years, and spent the remainder of its resources fighting to bring back the status quo.

Kind of eerie, isn’t it?

Fortunately, this crisis has left a gaping hole for independent artists and entrepreneurs to fill. The same innovations that sent the old guard into a tailspin have given resourceful indies a powerful boost to find an audience on their own. There are likely similar potential opportunities waiting to be seized as a result of the nation’s credit crunch. That’s the great thing about crises – whether credit, music or whatever else – they have a way of deconstructing old boundaries and setting the stage for incredible progress.