Experts Playing Taps For CDs, DVDs

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September 02, 2003 (1:53 PM EDT)

The growing popularity of downloading music and movies marks the end of CDs and DVDs.

That's the forecast of Forrester Research, which says that the plastic discs used in many U.S. homes today will be found in abundance at future yard sales.

"The idea that you should have to go into a store and get a piece of plastic and take it home with you is really an anachronism," Forrester analyst Josh Bernoff said. "We're seeing the beginning of the end for physical media."

Consumers' growing preference for downloading and streaming services is clear, the market research firm said. One in five Americans download music today from the Internet, with half of them saying they buy fewer CDs. By 2008, 33 percent of music sales is expected to come from downloads.

The same trend is seen within the movie industry, although the technology for video on-demand is not as mature, Forrester said. On-demand movie distribution channels will account for 15 percent of the movie rental business by 2005, compared to only 2 percent this year.

On-demand movie distribution is expected to generate $1.4 billion by 2005, compared to $410 million in 2003, while revenue from DVDs and tapes are predicted to decline by 8 percent. Personal video recorders, which are being integrated within set-top boxes, is expected to be the main vehicle for downloading movies, while PCs will play a secondary role.

"Delivering to a PC is a problem because that's not where people want to watch movies," Bernoff said.

Music sales are forecast to increase by more than a half-billion dollars in 2004, thanks primarily to online revenues, the research firm said. Sales in 2003 are expected to reach $10.7 billion, which is $2 billion less than three years ago.

The biggest losers in the transition from plastic to downloading will be retail outlets such as Blockbuster Inc. and Tower Records.

"This is very bad for them," Bernoff said. "While the movie and music industries will have to make a transition, the transition basically leaves the retailer out of the equation. (Retailers) aren't all going to disappear, but you'll see hundreds of stores close."

Big winners in the change will be Internet portals like America Online, MSN and Yahoo!, which will get a cut on music sales. TV cable companies will also do well on movie downloads and selling more broadband connections.

"It's really a net flow of money from retail to cable companies and Internet portals," Bernoff said.

Forrester predicts that within five years, the music industry will be in the middle of the transition from discs to downloading, while the movie industry will be just starting to take off. In 10 years, consumers will really see discs becoming obsolete.

Downloading entertainment is seen as the culmination of what started with the switch from records played on analog turntables to digital technology. CDs and DVDs are a stepping stone in that transition.

"I would call (downloading) one of the most significant media trends of this decade," Bernoff said.

Forrester based its research on a survey of 4,782 adults and 1,170 young people between the ages of 12 and 22, the most active users of file-sharing software.