The Rise of Vinyl and the Power of Scarcity

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Vinyl’s resurgence has been well-documented, but here’s a stat that I wasn’t expecting:

‍Harry Styles’s new album Harry’s House generated 62% of its first-week revenue from vinyl sales. Its vinyl sales generated more than three times its revenue from streaming, which accounted for just 18%.

Vinyls grew from a nice little bonus to a dominant revenue stream. It’s like James Harden going from 2012 Sixth Man of the Year to 2018 MVP. We knew there was potential, but we weren’t expecting all that. Is vinyl’s success sustainable though, or will the format shift back down to “playmaker” status, like 2022 James Harden?

Vinyls shift puts more power in the hands of record labels, who have to determine inventory for each artist given the supply chain constraints. Will they treat vinyls like a hype-driven collectible item? Or will it be subject to the same industry patterns that hold certain genres back?

The rise of vinyl and the power of scarcity

Vinyl’s revenue growth is due to a few factors:

- Supply chain issues increase material and labor costs: According to Billboard’s Chris Eggertsen, there have been increases on black compound, vinyl pellets, electricity, labor, and fuel. Plus, the potential shortage of nickel, due to sanctions against Russia, which produces 10% of global nickel output, has led to increased costs as well.

- Record labels pass those prices onto wholesalers: As a result, major record labels increase their wholesale and direct retail prices to account for the higher costs.

- Low supplies have limited supply: Those supply chain issues have slowed down production. Many albums, especially back catalog titles, can’t meet current demand. CD and cassette sales have likely seen increased sales due to the low quantities of certain vinyls.

- Heightened demand from consumers: As convenient as streaming is, many superfans enjoy the physical ownership, especially given the nostalgia.

Unintentionally, the supply chain challenges have increased scarcity, which heightens the demand and willingness to pay. The vinyl version of many albums can often come months after the release date, which may make fans want it more. Paying $40 for a Taylor Swift vinyl may seem crazy to most fans, but not for the real Swifties.

Back in 2016, 48% of people who bought vinyls reported that they don’t play them. That percentage has likely increased since then. The economic utility of buying a vinyl album is less compared to a music stream, and more like buying the latest drop of Travis Scott Air Jordan 1s.

Relying on the collectibles business model

The best way to monetize hype is to constrict supply and build demand. Nike has this down to a science with its SNKRS app. Its initial drops are small enough to build a lot of hype. Then, the inevitable mass-market drops just large enough so that only 4% of shoes sold ever hit the resale market. Quantities are limited enough to build demand, but not so limited that the resellers take too much money off the table. SNKRS has become a full-on customer experience built for enthusiasts. Sometimes customers get lucky (most of the time they don’t) but that’s the game.

Many artists could do well with a Griselda-inspired, SNKRS app-style approach to vinyls, but it’s unlikely to happen across the board from the major record labels. Vinyl sales are now too tied to the industry’s key performance indicators: first-week album sales and market share. Harry Styles’ record label, Columbia Records, wouldn’t want to miss out on him selling half a million units in a week and all the benefits that come with it.

The genre implications

But the labels have been more “flexible” with hip-hop vinyls. Tyler The Creator’s June 2021 album Call Me If You Get Lost was released on vinyl on April 2022. It had the biggest vinyl sales week (until Harry’s House) for a solo male artist with just under 50,000 sold. Tyler’s latest vinyl is currently unavailable until June 24, but he’s signed to Columbia, just like Harry Styles!

Is Tyler’s vinyl availability a reflection of accurately forecasted demand? Or is it a reflection of the label’s decision to give more of its limited vinyl production inventory to the British pop star?

While Styles continues to dominate the vinyl charts, the fifth-highest album of the current week is Kendrick Lamar’s good kid m.A.A.d. city, which will celebrate its ten-year anniversary in a few months. It’s a classic and beloved album, but it’s likely that high given that his new album Mr. Morale & The Big Steppers has yet to be released on vinyl.

Hip-hop music over-indexes on streaming relative to other genres. That’s nothing new. Its artists and fans lean into new platforms earlier than most, while pop, rock, and country still do better on physical formats. But vinyl economics are different. It operates more like a hype-driven merch item. And as Travis Scott has proved, hip-hop artists are some of the best when it comes to monetizing hype.

‍If vinyl supply is constricted for the foreseeable future, then tough decisions will need to be made. Some artists will be held back, but let’s hope it’s not just the hip-hop and R&B stars. If pop artists are prioritized relative to hip-hop artists from a lucrative revenue stream, then it is yet another inequity holding everyone back.

But once the supply chain issues improve, the record labels will have more control. For some, it’s a throwback to the CD era, where the industry was booming and revenue was sky-high. As the CD era showed us though, the demand for CDs was only sustainable for so long. Music piracy played a huge factor, but people can only buy so many re-released CDs of The Eagles’ Greatest Hits.

The hype and scarcity approach to vinyls may be the more sustainable route. Hip-hop acts like Griselda have shown that it’s possible! But will music’s key decision-makers be willing to make it happen? Time will tell