Paid in plays

A record collection is often judged as if it were trying to do what a share does. A share pays its owner in money. A record pays in things a share cannot: it can be played, handled, shelved and found again twenty years later. Where the same music can be streamed, what a copy adds is the object and the act of playing it. The useful money question about physical media is what owning it costs, once the playing is counted as part of the return and the resale as a refund.

Economists who have measured collectibles over a century reached the same place. Working from catalogue prices, Elroy Dimson and Christophe Spaenjers found that British stamps returned 2.9% a year after inflation from 1900 to 2008, more than bonds and less than equities.¹ Counting the costs that individual investors actually bear, they estimate that stamps may rival what such investors realise from shares.¹ Kathryn Graddy and Philip Margolis found that old Italian violins returned 3.3% a year after inflation from 1875 to 2012, against 6.3% for the S&P 500, before dealers' and auction houses' commissions of about 15% to 35%.² Reviewing stamps, art and instruments together, Dimson and Spaenjers concluded that even if such things are dominated by financial assets on risk and return, "they can still be rational purchases for individuals who derive pleasure from owning them."³

Stamps, paintings and violins can give that pleasure without being spent. Looking at a stamp or a painting does not use it up. Old Italian violins are tools for musicians, and most collectors and investors who own one lend it to a musician, who typically pays its insurance and maintenance.²

A record's pleasure comes out of its price. In the Goldmine grading standard, a Mint record has "never been played, possibly even still sealed", while Very Good Plus, the grade below Near Mint, "will show some signs that it was played" and is generally worth half the Near Mint price.⁴ Very Good, where surface noise can be heard in playing, is generally worth a quarter.⁴ A copy better than Near Mint is worth "significantly more" than the highest price in the guide.⁴ These grades are written for vinyl.⁴ A CD may give up much less of its price to being played. Among copies of any one record, those that fetch the most have paid their owners least in listening. A copy kept sealed for its value pays no dividend at all, and has to earn its place on price alone.

The refund is also smaller than the guide suggests. The same standard says a dealer will normally pay the Very Good price for a Near Mint record, about a quarter of its listed value.⁴ In 2023 Discogs, an online marketplace for records, raised the fee it takes from sellers from 8% to 9% and began charging it on shipping as well.⁵ How much of a record's price comes back depends on its condition and on how much of the selling its owner is willing to do.

The prices that make the news are the top of a very large market. Discogs told Billboard that by mid-November 2015 about 2.5 million records, 550,000 CDs and 50,000 cassettes had been sold on the site that year, at an average of $14.55 for a record and $11.70 for a CD.⁶ Billboard said the data "could not be independently confirmed", and added that the averages were likely affected by collectors' pieces.⁶ A few expensive copies pull an average up, so the typical sale was probably cheaper than $14.55. The most expensive item sold on the site that year went for $5,958.36.⁶ In 2018 Discogs reported that the quarterly average of its most expensive sale, around or under $2,000 in the first half of the decade, had passed five times that, and that the average for the 30th most expensive had climbed from about $300 to $1,300 since 2010.⁷ A 2020 study of rare records sold on Discogs found premiums for rarity at the top end of the price distribution.⁸

The violin and painting indexes follow the same objects through repeated sales.²⁹ No index like that seems to exist for records, so the long-run return on a record collection is unknown. Even indexes built that way flatter. Paintings are likelier to come up for sale after large price changes, and correcting a painting index for that cut its average annual return from 8.7% to 6.3%.⁹ A list of the year's most expensive sales is that selection with nothing corrected.

For violins, Graddy and Margolis put the reason in one sentence: because most of the dividends from owning one are not money, "investors should expect lower financial returns than from monetary assets with equivalent risk profiles."² The pleasure is part of what a buyer pays for. Love for a format is therefore no evidence that it will make money. A rise in that love pays the people who already own the records, once, as prices rise to meet it; a buyer at the new price has paid for the love too.