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On this day in 2001, the first installment of the famed Lord of the Rings series debuted in theaters — the films would go on to rake in nearly $3 billion 💰

As Gandalf once said, “All we have to decide is what to do with the time that is given to us.”

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💭 We can’t promise it’s as fun as a LOTR marathon, but it’s the next best thing.

Today, we’ll discuss the economics of the Christmas season, and more, in just 4 minutes to read.

— Matthew

QUOTE OF THE DAY

“If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money.”

— Ray Dalio

WHAT ELSE WE’RE INTO

📺 WATCH: Jensen Huang on Nvidia and the future of AI

🎧 LISTEN: A serial acquirers deep dive with Chris Mayer

📖 READ: Why we shouldn’t let perfect be the enemy of good

THE ECONOMICS OF THE HOLIDAY SPIRIT

Photo by Bing HAO on Unsplash

‘Tis the season to spend, spend, and spend away.

There’s plenty of shopping this time of year: Americans will pull out their credit cards over the next couple of weeks and spend about $975 on gifts this year, per a recent survey, which is up about $100 from last year.

The National Retail Federation estimates that Americans will spend roughly $960 billion on holiday shopping this year — more than the individual GDP of over 90% of all the countries in the world.

And that’s despite falling consumer sentiment and only weeks after record-breaking Black Friday and Cyber Monday spending. Families with children will spend about $1,300 this year vs. $835 for families without children. Clothing, technology, and other electronics lead the way.

“The holiday season has become a microcosm of the rise in consumerism in America,” noted one analyst. “Unsurprisingly, big stores have become increasingly dependent on the holidays to boost their profits.”

The history

Whether the holidays have become too commercialized is up for debate.

In Roman times, people exchanged holiday gifts, including food, clothing, and candles. But Christmas had faded by the 19th century. People made personalized, homemade gifts, and that was about it. Author Charles Dickens described the season in a nostalgic way, as if a bygone era.

After the Civil War, Americans wanted a reason to celebrate unity. They began exchanging gifts more regularly, and by 1870, Christmas became a federal holiday. That coincided with the Industrial Revolution and the production of physical goods like gifts, toys, and household items.

But then department stores emerged in the U.S., pouncing on the business opportunity to sell merchandise to celebrate Christmas. They brought out special gifts exclusively for the holiday season, like dolls and decorations in their windows. Macy’s initiated the movement after it opened in 1858.

Meanwhile, magazines, radio stations, and newspapers began selling holiday-themed ad spots, helping shift consumer behavior around the “Shop Early, Shop Often” mantra for November and December.

“Christmas shopping is in full swing in New York,” according to a letter in a newspaper on Dec. 22, 1887. There were “mechanical toys, children’s watches and every conceivable and inconceivable device for luring the unwary dollar from the pocketbook of the searcher after Christmas gifts.”

A spending tradition — and an entire market — was well underway.

The trees

Christmas trees are a big business, even if most Americans (77%!) display an artificial tree.

You can pick the real ones up at farm stands, grocery stores, and gas stations. The $2 billion industry boils down to an average tree price of about $80, and about 25 million trees are sold every December in the U.S.

Most trees come from Oregon, North Carolina, Michigan, and Pennsylvania. Farmers start years in advance by buying a seedling for about $0.50 to $1.00 per. Then, the trees spend a year or two in a nursery before being planted on land, where they grow for several years — sometimes up to a decade — before being cut, shipped, and sold.

As you can imagine, that’s a lot of time, land, labor, and equipment for a tree that might only sell for $75 a decade later. Farmers might only make between $7 and $12 per tree, meaning it’s difficult to be consistently profitable, especially because consumers have opted more frequently for artificial trees.

Plus, many farmers will tell you how they cut back after the 2007-09 recession, which hurt sales and led to oversupply. But big Christmas tree farms try to strike gold: They can ink seven-figure deals with retailers like Home Depot.

Of course, trees require decorations. Americans spend hundreds of dollars more on ornaments, wrapping paper, lighting, and other accessories, including those for holidays like Hanukkah and New Year’s.

From The Wall Street Journal

The music

Americans love holiday music, whether it’s on the radio or streaming. Mariah Carey earns about $3 million annually for her Christmas hit, “All I Want for Christmas Is You.” There are also songs like “Wonderful Christmastime” by Paul McCartney, who has reportedly earned over $15 million in royalties from that one song alone.

“If you look at the Billboard Hot 100 in any given week, it’s a series of entries that are constantly changing and constantly being replaced by new releases,” an assistant professor of musicology noted.

“That’s the way that the music charts work. Except in December, when all of a sudden, songs from 1934 start to appear alongside Justin Bieber’s latest single.”

Holiday music was a $177 million business in the U.S. alone in 2017, and it’s since grown by over 50%. Streaming has driven further growth, allowing decades’ worth of material to be easily accessible with a few clicks.

The week before Christmas, holiday music accounts for roughly 10% of all streams. Amazon Music received 35 million voice requests worldwide for holiday music on Christmas Eve.

As one singer told The New York Times: “There’s a sense of spirituality in Christmas music. It creates an atmosphere of togetherness and community, acceptance and warmth.”

Dive deeper

Check out Investopedia’s breakdown of this year’s holiday spending.