The combined popularity of peer-to-peer file swapping services and legal downloading sites will cause the CD format to go the way of the vinyl album, according to a study by research firm Forrester.
“Piracy and its cure — streaming and downloads — will drive people to connect to entertainment, not own it,” states the study.
In particular, younger consumers have made music downloading part of their lifestyle, Forrester noted, reporting that 49 percent of 12- to 22-year-olds have downloaded music in the last month.
Adding momentum to this trend is the proliferation of legal download services, Forrester said. A long list of large corporations — from Coca Cola to Apple (Nasdaq: AAPL – news) — are now purveyors of music downloads for a fee.
The shift from CDs to download-only music sales will take “a long, long time,” Forrester analyst Josh Bernoff, the study’s author, told NewsFactor, but is inevitable. “We’re training a generation of young people that there’s no connection between music and plastic.”
The Dinosaur
Launched in the early 1980s, the compact disc caused a sea change in the music industry, turning vinyl albums into collector’s items. In addition to offering superior sound quality, the CD was cheaper to manufacture, allowing the music industry to promote niche artists who otherwise might never have emerged.
The CD’s higher profit margins meant record labels have been reluctant to part with this now venerable medium.
But consumer behavior is eroding support for the CD, Forrester noted, reporting that half of downloaders say they now buy fewer CDs. The popularity of unauthorized P2P services, such as Kazaa, have cost the music industry US$700 million in sales since 1999, the research firm said.
The downloading trend also is affecting the film industry. One in five young file-sharers have downloaded a film, according to Forrester, which reported that movie piracy is “three years behind music.”
All Aboard
Record labels have attempted to come to terms with the seismic shift caused by P2P technology, launching legal downloading services. Seeing the trend, dozens of large companies — from telecom firms like Cable & Wireless (NYSE: CWP – news) to retail mega-store Wal-Mart (NYSE: WMT – news) — have launched or are planning download services.
The sound quality of these music downloads is not superior to that of CDs — in some cases it is lower quality — but the files can be shifted and transported among many digital devices, such as laptops and mobile phones.
“The download business is growing enormously,” Bernoff said. “Getting it right or getting it wrong will make all the difference in the success” of this strategy for music labels and other entertainment companies.
The CD is not dead yet, “but the more energy a company puts into trying to preserve the CD business, the worse off they’re going to be,” he said, “and the more energy they put into trying to get the download business right, the better off they’re going to be.”
Whether legal download sites will survive in the face of unauthorized P2P services is a key question facing the industry as it gradually shifts away from the CD.
The essential task for the record labels is to “marginalize the P2P services where it’s a ‘youthful indiscretion,’” Bernoff said. He pointed to the recent decision by Pennsylvania State University to license the now legal Napster (news – web sites) service to provide students with an alternative to unauthorized downloading. Many universities are considering a similar approach, he said.
The legal services eventually will overtake file-swapping services, but “it’s going to be a slow process,” Goodman says, not likely to occur before 2007.
But he added a caveat to his prediction: “If we see easy-to-use anonymous P2P sites out there,” he said, referring to file-swapping sites in which neither the downloaders or file-sharers are traceable, “then all bets are off.”
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