Did you know that humans have been making music for at least 40,000 years?

Every culture in every region throughout history has created its own form. Before the written word, songs were used to record our past and pass them on to the next generations.

To put it bluntly… music is incredible. And it’s no stretch to say that our lives (and memories) would feel empty without it. It’s also an easy bet that we will continue making and listening to music for the next 40,000 years…

That’s why, over at Capital Wealth Letter, we recently took a page out of Warren Buffett’s book when he explains why he owns companies like Hershey (NYSE: HSY) and Coca-Cola (NYSE: KO) — because they sell products that people will still be eating and drinking 100 years from now.

That same principle applies to music.

I don’t know anything about the future. But I’d bet that people will still be listening to music a century from now.

I’ll tell you how you can profit in just a second. But first…

A Quick Lesson In Music History

Famed inventor Thomas Edison made the first sound recording — Mary Had a Little Lamb — in 1877. By the late 1880s, the recording industry was born with the commercial sale of phonograph records. For years, concert halls, opera houses, and the sale of sheet music dominated the music industry.

In the 1920s, radio broadcasting brought music to a larger audience. Enjoying music was no longer restricted to those who could afford a venue ticket.

The advent of recordings and radio meant newly created music was no longer confined to regional popularity. It could be distributed nationally or even globally. In the finance world, we refer to this as the total addressable market, or “TAM.” And the bigger the TAM, the more money that can be made.

That TAM widened as vinyl records gave way to 8-track tapes, which were shrunk down to cassette tapes. Then compact discs (“CDs”) came along.

Heck, you even had entire television stations dedicated to music in CMT, MTV, BET, VH1, etc.

As the format that music was played on evolved, so too did the music…

Early phonograph records mostly featured orchestral music and opera. Then came the birth of jazz. Blues and country followed, which laid the foundation for rock ‘n roll in the 1950s. By the end of the century, a flood of genres and sub-genres exploded onto the scene. Think disco, punk, heavy metal, rap, R&B, hip-hop, and electronic dance music (“EDM”).

The music industry was booming. Total revenues grew 8% annually from 1973 through 1999, peaking at nearly $24 billion.

But then it all came crashing down as the Internet changed the game for good…

How The Internet Nearly Destroyed The Music Industry

In 1999, the peer-to-peer sharing platform Napster was launched. This allowed users to share songs in MP3 format with one another, which nearly eliminated the need to run down to Tower Records or Blockbuster Music and snag a CD.

Napster was eventually shut down due to copyright infringement.

The one bright spot from the piracy days of Napster was that it helped consumers become comfortable with digital music. That paved the way for Pandora, Apple’s iTunes, and Spotify.

But it wasn’t Napster that nearly took down the music industry. Instead, it was iTunes…

You see, before iTunes, music companies made the bulk of their money by selling CDs. When the iTunes store launched two decades ago, you could buy one song for $0.99 or the entire album for $9.99. This was a deal that Apple’s late founder Steve Jobs struck with the music companies.

It turned out to be a very bad deal for music companies…

Sales of CDs started to decline. And with consumers paying a buck or two for their favorite songs on an album, there was no need to fork over $10 for the entire album (or go purchase a CD).

As you can see in the graph above, after peaking in 1999, music revenue came crashing down. The entire music industry — artists, studios, label companies — was in turmoil. It was widely believed that the music industry was in a terminal decline…

Music’s Savior

The Internet, and more specifically, the digitization of music, brought the industry to its knees. But it also played a role in saving it.

Sure, it was cool (for consumers) to pay 99 cents for our favorite songs and create our favorite playlists. But it was also darn near a full-time job keeping up with new music, updating playlists, discovering new artists, and then loading that all onto your iPod.

So, when Pandora launched in 2005, it was a game-changer. Here was a service with an algorithm to create a playlist based on your favorite song or artist. It did all the work for you. Plus, you could stream Pandora without worrying about going into iTunes to purchase a song or album.

Pandora helped usher in the era of streaming music.

Then in 2008, Spotify (NYSE: SPOT) launched a streaming service. Like Pandora, users could simply stream their favorite songs. But unlike Pandora, where you don’t have much control over the songs you listen to, you can listen to any song you want with Spotify. You had access to an entire library of music… all for the price of one album on iTunes per month.

(iTunes digital download sales began declining, so Apple launched its own streaming service, Apple Music.)

The value proposition of having almost every recorded song accessible for a low $10 a month was a no-brainer for consumers. Not surprisingly, user growth exploded.

Even better, music companies were beginning to see a rise in revenue. They get about $0.0075 for every song streamed.

After bottoming in 2014, revenues began to rise again thanks to the growth in streaming services. At the end of 2022, recorded music revenues grew for the seventh consecutive year, reaching $15.9 billion (with streaming accounting for 84% of that revenue).

From a music industry standpoint, the rise of streaming services was its savior. And the music industry is once again in growth mode. In fact, according to the Recording Industry Association of America (“RIAA”), Americans spend more than four hours a day listening to music.

So, how are we going to take advantage of this resurgence in music? Sure, you could go with Apple, but it’s a tech company, not a music company. Spotify is another way, but let’s be honest… Anybody can come along and create a competing streaming provider.

Instead, I’m going straight to the music recording industry itself…

The Best Way To Invest In Music

Today, three juggernauts dominate the music recording industry: Universal Music (UMNGF), Warner Music (WMG), and Sony Music (SONY). Collectively, they control nearly 70% of the world’s recorded music.

These studios boast unique assets with intellectual property they’ve built up over decades. Their profitability is protected by barriers to entry that make it nearly impossible for new competitors to crop up.

And the best part is that you can invest in all three of them.

I won’t reveal my favorite, but in the meantime, if you’d like to learn more about Capital Wealth Letter (and view our latest research), go here now.