Forrester Report Says Downloads Will Replace Discs

Online and on-demand media services in digital form are likely to make CDs and DVDs obsolete as consumers switch to downloads and streaming media to get their music, movies and other entertainment, according to Forrester Research.

Providing evidence that downloads cost the music industry US$700 million in lost CD sales last year, Forrester said in its report -- titled "From Discs to Downloads" -- that legitimate Internet subscriptions and downloads will account for one-third of all music sales by 2008.

Industry analysts indicated that although prosecution of copyright infringers will deter young downloaders from using unlicensed file-sharing networks, the industry is missing out on the movement away from physical media.

Survey Specs

Forrester principal analyst Josh Bernoff told TechNewsWorld that by extending its surveys for the report to a younger demographic -- people aged 12 to 22 -- the survey was able to prove music industry losses to downloads and to indicate a new way of viewing music and other entertainment media.

"I do think you'll see the percentage of online subscriptions and downloads increase as more and more people, especially young people, get used to the idea of music as a service rather than something they have to buy and own," Bernoff said.

Bernoff, despite noting that the over-30 crowd will keep CDs around for a long time, said he expects to see an increasing amount of sales of digital formats.

Shift to Digital

Yankee Group senior analyst Mike Goodman agreed that a shift to more digital distribution is coming, but he told TechNewsWorld that the majority of consumers will continue to buy CDs and DVDs even as they download digital entertainment.

"We're not going to see all of a sudden the disappearance of physical media in the next couple of years," Goodman said. "Consumers do not act in black and white. They like multiple means of distribution and multiple forms of media."

Goodman added that while physical media, such as CDs and DVDs, might become obsolete in the presence of downloads and streaming, this will not happen for 20 to 30 years.

Physical Media Longevity

One of the main reasons for the continued longevity of physical media is the installed base of stereo technology, according to Goodman.

He also referred to the technological difficulties associated with downloading and burning as an obstacle to the digitally imposed death of discs.

"A very significant portion of the market is not comfortable with downloading and not technologically sophisticated enough to burn," Goodman said. "There will be a significant need for the distribution of physical media."

Legitimate Download Services

Forrester's report also addresses the effectiveness of legal prosecution of illegal file traders and the emergence of legitimate, licensed download services, such as Apple's (Nasdaq: AAPL) iTunes.

"File sharing is going to fade significantly," Bernoff said. "We found the lawsuits [from the RIAA] are effective and there seems to be an end result that is actually happening."

Bernoff, who added that the legal heat must continue "to keep scaring people," said the quality of files available for download also will become more of a differentiator between legitimate and unlicensed download services.

Missed Marketing

Still, Goodman said that by focusing on prosecution of illegal file traders and resisting the model of popular peer-to-peer (P2P) networks, such as Kazaa and Morpheus, the recording industry is missing a giant marketing opportunity.

"They're missing the boat on where a big opportunity lies -- not in the lockdown of their content, but as a sales and marketing tool," he said. "The business rules become almost endless when you start to think of [P2P networks] as a marketing tool."