Analyst: Music CDs will give way to digital downloads by 2012

HD DVD isn't the only optical disc format that's heading into decline right now. Audio-formatted CDs will find themselves one-upped by digital music by 2012, according to a Forrester report issued today.

Digital music will soon produce more sales than music CDs, says today's new Forrester Research report, which yields similar numbers to those released by JupiterMedia last fall. But where Jupiter analyst Mark Best thinks there'll always be some market for CDs, Forrester's James L. McQuivey plays up the roles of DRM-free music and social networks in digital music downloads.

Similar to the findings of a study released last fall by Jupitermedia, the Forrester report finds that the yearly rise in downloaded tunes will not make up for a steady slide in CD sales.

Driven by MP3 player adoption, DRM-free music, and social networking, digital music sales will inch upward at at compound annual growth rate (CAGR) rate of 23% over the next five years, reaching $4.8 billion in 2012, according to James L. McQuivey, a VP and principal analyst at Forrester.

In the same year, CD sales will slip to an abysmal $3.8 billion, said McQuivey, terming this phenomenon "the end of the music industry as we know it."

With the current move toward the elimination of DRM, profile spaces on MySpace and other social networks are metamorphosing into online music stores, centering around the preferences of their respective individual members.

All four of the biggest music labels are already starting shedding the baggage of DRM, the Forrester report observes. And as previously reported in BetaNews, Microsoft's Zune service, Apple's iTunes, and have all jumped on the DRM-free bandwagon.

As for MP3 players, Forrester's McQuivey points out that the average device is only 57% full, further suggesting that many of these players are currently under-utilized.

In another intriguing result, the analyst predicted that, in the future, most MP3 players will be sold into households that already have at least one of these devices.

In looking at Jupitermedia's research in this area, which yielded somewhat similar numbers, Jupiter analyst Mark Best told BetaNews that CDs "will never really go away," despite the projected massive drop in music CD sales.

CDs will continue to be popular among adults who grew up with CDs, record albums, or tapes, said Best.

For his part, on the other hand, McQuivey predicts that music labels might turn to other sources of revenue -- such as music-enabled games -- to help close the impending financial chasm.

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