Extract A: The decline of physical music formats and the rise of digital streaming

Historically, physical CDs were the dominant format for music distribution. CDs are private goods, meaning they are both rivalrous and excludable in consumption. Record companies and music retailers relied almost entirely on physical album sales to generate revenue, which covered the costs of recording, physical manufacturing, packaging, nationwide distribution, and retail overheads. In recent years, however, sales of physical music CDs have plummeted. Between 2012 and 2022, thousands of specialist independent record stores closed globally, and major high-street retail chains significantly reduced or completely eliminated their shelf space designated for physical music formats because of plummeting demand.

Extract B: Streaming platforms and the economics of digital music

Digital music distribution has fundamentally altered how consumers access music. When music is streamed via free, ad-supported tiers on platforms such as Spotify or YouTube, it exhibits some properties of a public good, particularly non-rivalry, as one person streaming a song does not prevent another from doing so. To capture revenue, digital platforms utilize various business models: some offer completely free ad-supported access, others require flat-rate monthly subscriptions, and some use a freemium hybrid model. This transition has severely impacted the demand for physical CDs. Because digital streaming offers vastly superior convenience and a near-zero marginal cost per song for the consumer, buyers have rapidly substituted physical CDs with digital alternatives. Some cultural advocates argue that because physical retail music stores foster local cultural scenes and support independent artists more fairly, the government should offer tax breaks or subsidies to independent record shops.