Will CDs go the way of vinyl... and the Dodo?

A sharp rise in the legal and illegal downloading of music could prove to be the final nail in the coffin for the much-loved CD which revolutionised music in the eighties, but is now seen in some quarters as a little outdated.

Forrester Research has predicted a steep fall in CD sales, as audio and video file sharing over the internet continues to emerge as a preferred option among consumers.

The CD's decline into obsolescence won't happen over night, but Forrester said 20 per cent of US consumers engage in music downloading, and half of the downloaders said they are buying fewer CDs. By 2008, 33 per cent of music sales will come from downloads, with CD sales down 30 per cent from their 1999 peak. On-demand movie distribution will generate $1.4bn by 2005, and revenue from DVDs and tapes will decline eight percent, Forrester predicted.

Josh Bernoff, principal analyst at Forrester, said in a statement: "The shift from physical media will halt the music industry's slide and create new revenues for movie companies, but it will wreak havoc with retailers like Tower Records and Blockbuster. As a result, we're about to see a massive power shift in the entertainment industry."

According to the study, in the next nine months, at least 10 Windows-based music services will emerge, creating alternatives to illegal file sharing. AOL already has 90,000 MusicNet subscribers; Musicmatch and RealOne Rhapsody are expected to differentiate their media players with webradio; BuyMusic will try to take advantage of its early entry with personalised recommendations from ChoiceStream; and Apple Computer will release a Windows version of its popular iTunes service.

Forrester predicted that by the end of 2004, Apple and possibly Musicmatch will emerge as leaders, file sharing will be in decline, and downloads and on-demand subscriptions will bring in $270m. Surging online revenue - including subscription services - will increase music sales by more than a half billion dollars in 2004, according to the study.

The research firm said music companies and studios are realising that they must create new channels for online delivery. Consumers, tired of paying high prices for CDs and DVDs, are looking for flexible forms of on-demand media delivery.

"Technology trends like increased broadband adoption and cheap, widespread storage have made it possible for consumers to easily manage their digital entertainment at home," Bernoff said.

The survey also shows that the music industry's plan to sue individuals for online piracy through software such as Kazaa may pay off. More than two out of three young file sharers said they would stop swapping if there were a serious risk of jail or a fine.