The following essay is adapted from Sects, Love, and Rock & Roll (Cascade Books), an entertaining and informative collection of essays about Christianity, music, and coming of age in the 1990s. The author is a frequent music critic for Christianity Today.
The history of Christian music basically goes like this: rock and roll (which was created possibly by Bill Haley and the Comets, maybe by Elvis, probably by the Beatles) is conceived, born, and begins to mature sometime between 1950 and 1960.
At some point, rock bands stop being polite young men in matching suits and become drug-addled, free-loving, infrequent bath-taking hippies, and the music gets more interesting. The hippies realize that taking tons of acid has not actually made their lives quantifiably better and become disillusioned; some of them become lawyers, but some find Christianity to be a more satisfying alternative, establishing a kind of counter-counterculture called the Jesus Movement. These people (also called Jesus Freaks) are still hippies, but with less drugs and sex and more Jesus. More Jesus, in fact, than a lot of churches, who (the Jesus Freaks think) are too focused on rules and rituals and not enough on the joy of the Lord. Converts though they are, these emerging Jesus rockers are not keen on stodgy church music (it's part of the problem), and so they keep playing rock and roll, but—and this is key—they do not go back to the politeness and the matching suits. They keep their beards and torn jeans, and the Jesus Freaks start touring churches with their bands. Other Christians start to realize that (a) these people seem pretty legit, faith-wise, and (b) kids seem to like this kind of music.
This is where things get sketchy and where you should ask someone who was alive before 1980, but somehow a collusion of churches, businessmen, parachurch organizations, rock bands, and musicians gets together and establishes some Christian record labels. These labels are fairly small and independent, but in the 1980s, a lot of people start buying records from them, the economic gears get moving, and soon something large enough to be called a "Christian music industry" exists, both in a "mainstream" or wholesome, money-making, and authority-approved form, and in an "underground" or youth-oriented, not particularly money-making, and suspiciously authority-unfriendly form.
By the beginning of the 1990s, Christian music of all genres and proclivities is beginning to melt into one glorious spectacle of noise, faith, money, and culture—all lines save the one that separates "Christian" from "secular" are blurred. You start to see Christian records in regular record stores (but not many), and "Christian bookstores" that once sold only Bibles and cross necklaces are now stocking Christian heavy metal and gangsta rap albums. There are Christian fake-indie labels pouring money into records by great bands, Christian indie labels with no money putting out bad records, and vice versa. Grunge rebel songs and ballads about chastity are played one after the other on Christian radio. Metrosexual Christian pop singers open for nu-metal Christian rock bands. Everyone is buying records and Christian bands fight their way to the upper third of the Billboard charts. This all lasts for most of the decade, until the turn of the century when everyone stops buying CDs, the Christian indie rock bands get fed up with the profit-driven audience pandering (sometimes referred to as the "Jesus Per Minute" rule) and pull up stakes and decide to try their luck in "the world," and the Christian industry consolidates itself, musically, by focusing on artists who sound like Coldplay and U2: epic e-bowed guitars, soaring choruses, and lyrics, loud in the mix, about wonder and worship.