Forrester Research has released a study predicting the demise of the music compact disc as more people choose to download music from digital music services like iTunes, and illegal file-sharing sites.
The study's author, Josh Bernoff, told CNN: "On-demand services are the future of entertainment delivery. CDs, DVDs, and any other forms of physical media will become obsolete."
According to the report, 49 per cent of American 12- to 22-year-olds have downloaded music in the last month. And, Forrester notes, "Half of downloaders say they now buy fewer CDs".
The research firm also said that the popularity of unauthorized P2P services, such as Kazaa, have cost the music industry $700 million in sales since 1999.
Mirroring the Forester findings, Nielsen SoundScan estimates that between 2001 to 2002 62.5 million fewer CDs were sold. Plummeting CD sales have apparently forced record shops to close.
"Consumers have spoken – they are tired of paying the high cost of CDs and DVDs and prefer more flexible forms of on-demand media delivery," Bernoff told NewsFactor.
Although inevitable, and despite the large numbers of legal download services launching, the shift from CDs to download-only music sales will take "a long, long time," according to Bernoff. He told NewsFactor: "We're training a generation of young people that there's no connection between music and plastic."
He credits that: "The download business is growing enormously." But he adds that "the CD is not dead yet". However, according to Bernoff, music companies should not put too much more energy into trying to preserve the CD business: "The more energy they put into trying to get the download business right, the better off they're going to be."
The Forester report also predicts that by the end of 2004 downloads and on-demand subscriptions could bring in $270 million, and concludes that if the trend continues, three years from now digital music sales could account for $1.4 billion of the music industry's $12.8 billion in expected revenues.
Similarly, Yankee Group analyst Mike Goodman predicts that by 2008, music downloads will account for a third of music-industry revenue overall. The also predicts that: "The legal services eventually will overtake file-swapping services, but it's going to be a slow process, not likely to occur before 2007".
He added: "If we see easy-to-use anonymous P2P sites out there then all bets are off."
Music companies are trying new tactics to keep CDs alive, according to the CNN report. These include giving away DVDs with CDs, and using new technologies such as the super audio CD and DVD audio for superior sound.
Another option is pursuing lawsuits against heavy file sharers. Although the recent attacks on file sharers received criticism, the report found that more than two out of three young downloaders would stop if they risked jail or a fine.
The report also indicates that one in five young file sharers has downloaded a movie. In fact among downloaders with more than 400 files, 70 per cent had at least one video file. According to Forrester, movie piracy is "three years behind music."