The end is nigh for CDs and DVDs as the music industry begins to embrace legitimate downloading and streaming services at the expense of traditional formats.
A report from analyst Forrester, From Discs To Downloads, has found that 20 per cent of Americans engage in music downloading and half of those admit to buying fewer CDs.
In five years, it is predicted that a third of all music sales will come from downloads.
Forrester indicated that video file sharing has become more prevalent, with one in five young file sharers downloading feature films.
Cable video-on-demand and other on-demand movie distribution channels are expected to account for close to 15 per cent of the movie rental business by 2005.
Josh Bernoff, principal analyst at Forrester, said: "The shift from physical media will halt the music industry's slide and create new revenues for movie companies.
"Entertainment executives focused on the short term, i.e. fighting piracy, are losing track of the long-term consequences.
"On-demand services are the future of entertainment delivery. CDs, DVDs and any other forms of physical media will become obsolete."
The music industry will rebound as the combination of lawsuits and legitimate on-demand music services reverse its losses, according to Forrester.
In the next nine months, at least 10 Windows-based music services, such as Apple iTunes, Music Store and MusicMatch, will create convenient alternatives to illegal file sharing.
And Forrester forecasts that on-demand movie distribution will generate $1.4bn by 2005, while revenue from DVDs and tapes will decline by eight per cent.
"Music and studio executives are finally beginning to understand that they must create new media services through channels that consumers will pay for," said Bernoff.
"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."
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