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Report: 'hard' media in jeopardy

Wed, 09/03/2003 - 8:00pm
Staff

Copyright 2003 MarketWatch.com Inc., All Rights Reserved

CBS MarketWatch

September 2, 2003 Tuesday

New York (CBS.MW) — DVDs and compact discs could soon be obsolete, according to a report issued Tuesday by Forrester Research. "CDs and DVDs will go the way of the L.P.," Forrester predicts.

File sharing is responsible for almost $700 million of the $2 billion reduction in CD sales since 1999, Forrester says, noting that movie companies face a similar sales threat.

The so-called "hard" media are in jeopardy, concludes principal analyst Josh Bernoff of the Boston-based research organization. "By 2008, revenues from CDs will be off 19 percent, while DVDs and tapes will drop 8 percent," Bernoff said.

By the end of next year, 20 million U.S. consumers will be spending $14 billion annually on broadband connections, the report says. Streaming and paid downloads will drive people "to connect to entertainment, not own it," the report says.

Forrester points out that the gloomy sales trend for CDs is already under way, as CD sales in the U.S. fell 15 percent during the past three years. Discussing what it ominously calls "the slow death of the disc," the research group says broadband, widespread storage and digital rights protection will make on-demand music and movie services more popular.

While consumers always pursue bargains and higher quality, convenience remains the key attraction.

"The idea that you have to get in your car, go to a store and buy (an item) is really out of touch," Bernoff added in an interview. "The on-demand and cable access services have all the advantages. All of the content is coming to cable."

The report's findings will affect the media and entertainment industry's largest companies, including AOL Time Warner (AOL), Walt Disney (DIS), Viacom (VIA) and Sony (SNE).

"Movie companies are reacting aggressively and moving from talk to action," Bernoff said. "They're making it as easy as possible for you to download a movie and pay for it."

Over time, Bernoff projected, his findings will be more vivid. "There are 10 million people who now have video-on-demand and that number will be 20 million by the end of next year," he said.

"The big winners are going to be Internet portals and cable companies who can deliver on demand," he said. "The disaster is (potentially) for retail companies," such as Blockbuster, Virgin megastores and Tower, which would suffer. "While labels will survive, I'm very doubtful for the prospects of big music retailers."

The solution is for the retailers to get the most out of the marketing appeal of their well-established brand names. "Western Union is all about maximizing its brand name, not delivering telegrams, any more," he said.

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