Actually, here's another idea for where at least a part of those 8 billion are coming from. Now probably none of them accounts for 8 billion by itself, but I do believe it adds up.
1. Just the economy and more importantly how it impacted culture. In 1999 it was in the middle of a bubble, and everyone who got some of that money was flaunting it somehow. Buying stuff to show you can was expected.
Nowadays we're still on the tail curve of a depression, where a bunch of people lost their homes, unemployment is still very high, a bunch of people ARE having less disposable income (the median family income didn't follow the GDP per capita, so pretty much everyone south of the median is getting shafted) and most importantly this creates uncertainty for the future. It's looking like a lot less of a good idea to blow all your money on entertainment and luxuries when you're not sure if next year you'll be able to afford the essentials (medical care included) and/or keep your home.
A bunch of other industries are feeling the same pinch, so I fail to see why the RIAA would think they're exempt from it and should see the same income as at the apex of a bubble and of economic optimism, if it weren't for those pesky pirates.
2. Less free time for that entertainment. We just had a front page article yesterday about how overtime demanded is steadily climbing.
3. Competing with other forms of entertainment. You can see the movie industry and TV having the same problem. Less people are going to the movies when they can play WoW or TOR or whatever for a month instead. And it's not just games. Social networks for example also sink a heck of a lot of the time left after that overtime.
It's stuff that was still regarded as (borderline) stuff for socially dysfunctional nerds in 1999. The idea that if you play Ultima as an adult you're probably one of those 40 year old virgins living in mom's basement was flung around by many a lot more seriously than nowadays.
Internet access also was spotty and slow, and frankly there wasn't all that much to do on the Internet, compared to nowadays.
The whole culture was more favourable to sitting and listening to a record as a way to pass the time, while nowadays it's at best something you use as background music while doing something else. And not just while you sit at home but also...
3. Share of the MOBILE entertainment. Frankly there was not much more you could do in 1999 on the road than listen to some music on your walkman or CD player or, if you were really high tech, MP3 player. Sure, you could use a gameboy, but see again, a lot saw that as stuff just for kids, and it also didn't help that most of those mobile games WERE made for kids.
There was a lot of music bought just to have something to listen to while you're on the bus or train or plane.
Nowadays even kids have phones capable of doing much more than that, including again Internet stuff. That's got to mean less albums you need to buy just to keep from being bored out of your skull on the road.
Which in turn sets the stage for the next point...
4. A different culture among the youth. Which, honestly, was always a big target demographic there.
It used to be that music was a major topic in high school, and buying the same records that the rest of the lemmings were persuaded by marketing hype to buy, was the way to fit in. There were a lot of Britney Spears albums (chosen as an example because she had her first album in 1999) and whatnot bought just to fit in with the cool kids who were listening to Britney Spears.
And don't kid yourself if you were all counter-culture, the same applied there. There were a lot of The Cure and Sex Pistols albums sold to kids who wanted to fit in with the goth and respectively punk gang. We were so independent and defying convention and totally unlike the rest of the sheeple, and whatnot... that we bought the exact same clothes, music, etc, as a group we were trying to fit in. Yeah, different and independent my ass.
Nowadays even "hey, look what cutesy game I have on my iPhone" may well be a bigger topic. You CAN find other things to talk to the group that don't involve buying the same CDs they do.
5. Last, but probably the biggest factor, people ARE buying less music just because they're buying less PADDING.
Honestly, I can't think of many albums where I actually wanted or even liked every track. In fact, other than one or two, I'm drawing blanks. Try thinking about it yourself, and you'll probably get the same results.
Heck, even for the kids' culture reasons I was mentioning before, you didn't really need the whole effing album. Even if the cool gang were talking about that new Britney Spears album, chances are you'd only hear about the couple of songs that were all over the radio and TV, and nobody would mention 8 or 9 of the tracks on it.
But you had to buy a whole CD, didn't you? You'd pay for all those tracks even if they didn't interest you.
Nowadays people are buying just the tracks they want, and skip the rest of the filler, so obviously you see less tracks sold and at that for less money.
It's like if, dunno, imagine some dysfunctional imaginary country, let's call it Elbonia, where the bread bakers form a cartel and effectively enforced that you can only buy bread by the dozen loaves AND you're forbidden to give some of that to other people. Then one day this comes apart and you can again buy individual loaves or even halves. Don't you think they too would see their income plummet as people suddenly buy only as much bread as they need?
6. It IS sold cheaper.
At some point during my previous point you probably thought, "wait, you could buy singles too." Well, yes, but at a seriously higher price than a track on an album. Nowadays the industry is selling essentially singles at the price of a track on an album, and that is simply giving it away cheaper.
You just couldn't buy a single for 1$ unless maybe if it was second hand or something. Nowadays you can.
Heck, even for the tracks on a CD, a lot of CDs cost more than ten bucks or so, which is how much it would cost to get everything on them online.
So basically it strikes me as third degree mental retardation to sell stuff at half the price (actually even less), and then wonder what kind of thief made you get only half the money. I mean, seriously. Imagine if an individual person went to the police with a story boiling down to basically, "I started selling my bread at half price and, gosh darn it, even though I had baked as many loaves, at the end of the day I had made only half the money I made the previous day. There must be a bread thief around."
6. Even the elasticity of supply and demand won't really compensate for all of it, because frankly there is only a finite number of tracks that you can obsess about at a given time.
And here's another idea: most of the demand was artificially created by saturating the airwaves with a handful of songs and convincing kids that THESE tracks from THESE singers are the thing to have. The whole idea behind it is to have a handful and saturate the mindshare with them. If you do it with 10 times more songs, then each individual one is lost in a deluge of new stuff that you have no reason to pick one over another.
And more scarily for the music industry, unless they can tell you that THESE are the songs to have and saturate the mindshare with them, then you might go buy something from an indie musician and skip them completely.
The whole key to it working is that there's a dozen of new songs tops, often much less, that they can artificially manufacture the hype for and tell you to buy. If you try the same with two hundred new songs, none of them is on the air long enough to give you any particular reason to want exactly that one song. Or any of the others.
Briefly: perfectly elastic supply-demand economics can't exist in a market where the biggest driving factor is advertising, and you have the same finite and inelastic amount of marketing you can do. Sometimes if you give the songs for half the price, but fundamentally don't have the means to do twice the hype, you just sell the same number of hyped tracks and make half the money.
7. And here we come again to that aspect of competing with other entertainment. Only this time it's that marketing hype that's competing for time with it, and losing.
It's not just that people now spend more time surfing on their smartphone than listening to music on the train, or playing WOW instead of listening to the ol' vinyl at home, which I covered already. It's also that they spend less time looking at MTV or listening to the radio stations that were used to hype certain tracks to them, so they'll buy it. With TV viewing steadily declining in all that time, there are also less people watching MTV, and getting the idea which album they should they buy.
So in that marketing-driven market, not only the space and audience for marketing are inelastic and can't grow, they're actually shrinking. If they don't expect that to affect the bottom line, remind me WTH reality they live in.
Etc.
Basically, yes, their revenue shrank, but to blame all 8 billion on piracy is stupid.