Study: CD will kneel before digital

New ruler by '12; biz must 'redefine what its product is'

Digital music sales will surpass CD sales in five years, according to a new report from Forrester Research ominously titled "The End of Music as We Know It."

Forrester predicts that digital sales will grow by 23% a year through 2012, when they will reach $4.8 billion in annual sales. CD sales will slide to $3.8 billion in 2012, according to the report. However, digital growth won't make up for CD declines during the next five years.

Forrester surveyed 5,000 consumers in the U.S. and Canada. The company found that MP3 devices are being underutilized, with just 57% of their capacity filled. Forrester also predicts that DRM-free downloads will extend to Apple iTunes and other services and onto social networks, where friends could sell friends their favorite songs.

The researcher believes that digital downloads will dominate sales in coming years but sees some growth potential for online music subscription services, which it says will grow to $459 million in revenue by 2012. Ad-supported downloads will fail to take off because of DRM-free music and on-demand streaming from sites like imeem.com, according to the report.

"The industry has to redefine what its product is," Forrester Research vp and principal analyst James McQuivey said.

"Music executives have spent years tracking CD sales," he said. "But the artist is the product — not just the source of it. New forms of revenue will come from unexpected sources. For example, the industry has failed to capitalize on the growing popularity of video games such as 'Guitar Hero' and 'Rock Band.' In a market where musicians are happy to sell a million copies of a CD, a video game market where titles can sell 5 million copies is enough to motivate even the most depressed music executive."

Jennifer Netherby is a contributor to Billboard.
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