Did you catch the Grammy Awards earlier this month? If not, you weren't alone. Nearly twice as many people chose to listen to complete unknowns croon on American Idol that night instead.
Shocked? You shouldn't be. Music award shows have been tanking in the ratings. CD sales have fallen in all but one of the past five years. The concert business has been humming along nicely, but that's more the product of aging artists going on pricey tours that well-heeled baby boomers don't mind paying up for.
The real state of the music industry can be found in the youngest generation. That may be a troubling trend for the four major labels, but it's a refreshing breakthrough for everybody else.
The kids are alright
Your kids still love music. They can't get enough of the stuff. They load it into their iPods. They uncover new bands through music exploration sites like Pandora.com and social networking sites like MySpace.com. Our generation was limited to a few repetitive tracks in heavy rotation on commercial-packed terrestrial radio. Today's youth consume a wider variety of artists through ad-free, genre-specific marvels like satellite radio and Internet radio.
Growing up, the chance receipt of a mix tape might have opened your ears to the sounds that would shape your life. Today's young 'uns have the luxury of duplicating that moment of melodic discovery in perpetuity. Go ahead. Be jealous. Then take a step back and pat yourself on the back. You're in a financial position that many of those kids can't occupy. You're an investor. You can profit from the trends that they are shaping. Pop a Geritol if you have to, but come back with a hunger to uncover the stocks that will profit from the new music revolution.
Kill all major labels
The four major labels aren't toast. They're just in for a long rebirthing process. It won't be easy. They spent their lives taking calculated risks in an environment they understood well. They had the leverage that mattered, keeping everyone from radio stations to music stores in line by controlling the content distribution. You were cheated, growing up. You just didn't realize it at the time. Just about everything that you heard growing up was either carefully orchestrated or stapled to a grander agenda.
Today's kids don't come with the same puppet strings. They can still be manipulated, but not by the major labels. In the coming years, companies like Apple Computer
The labels realize this. In September, Warner Music Group
Warner isn't the only major label launching an e-label, but you don't need to be a master of game theory to know how this will play out. The playing field is being leveled. The big record labels may feel as if they're leading the way, but they're not going to like where they're heading. Listeners' attention is being divided into thinner -- yet more dedicated -- slices. You used to need a major label to break a record, but what does that mean these days? Over the past few years, MTV, terrestrial radio, and the CD superstore have been made less relevant.
By penetrating deeper into play lists, our ears are warming up to greater depths in music appreciation. Teens clicking through MySpace or iTunes may be exposed to dozens of bands in a fraction of the time that it took their parents to unearth new music. Tastes will become more refined, and defined, and that's going to make it harder to create cookie-cutter rock stars.
Where the new stock stars are jamming
Apple will obviously matter in the future. You don't sell 42 million iPods and work your way toward a billion digital downloads and not matter. Amazon.com
What News Corp. does with the golden ticket known as My Space remains to be seen. Last year, the site launched its own CD. That disc, and the music site's landing page, feel more like the latest issue of Blender than the uninhibited world of garage bands and grass-roots marketing, but you're already starting to see some creative unknowns making a dent via guerilla marketing.
Music subscription sites like Napster
That's why online music sites, media players, and even satellite radio (now with more than 9 million subscribers, and looking to close out the year with more than 15 million) stand to inherit the throne of musical power brokers. Five years from now, do you really think that the four major labels combined will wield more influence over music fans than Google
That's why an investor should get excited about the music industry despite the bleak headlines. In fact, those same dreary headlines should be reasons to get excited. A musical revolution is afoot. Our Rule Breakers ultimate growth newsletter service is all over that. In the past year, we've singled out a satellite radio pioneer, a software powerhouse in the lucrative wireless space, and the parent company of one of the leading sites for unsigned artists. If these sound like areas where you might want to invest some of your high-risk, high-growth potential dollars, come on over and join the service for free over the next 30 days.
The digital music revolution is here, and you're never too old to enjoy it. All you have to do is listen.
Longtime Fool contributor Rick Munarriz can shell out plenty of horror stories about the old school music industry's ways. His band -- Paris By Air -- was signed to Sony's Columbia Records way back in the day. He does not own shares in any of the companies mentioned in this story. Amazon.com is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy . Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.