Net music is yet another biz 'bubble'

By Bernhard Warner, European Internet Correspondent

CANNES: - Music downloads will render the ubiquitous compact disc all but obsolete in the next five years, yet half of all companies that begin selling digital songs online will fail by year-end, a researcher warned on Saturday.

By 2008, one third of music sales in the United States and nearly 20 percent in Europe will come in the form of downloads and streaming music over the Internet, building a multi-billion dollar business for the battered music industry, according to a new study by consultancy Forrester Research.

"The industry is going through a complete change in the way people consume music," Josh Bernoff, a Forrester Research analyst told a gathering of music and technology executives at the annual MidemNet conference.

He said the U.S. market alone for downloads and subscriptions to online music stores will top $300 million this year from a virtual standing start a year ago.

"By 2007 or 2008, CDs will be something only old people have," Bernoff said.

Introduced 20 years ago, the CD revolutionized the music industry, pushing cassette tapes and vinyl to the scrap heap.

Digital downloads offer virtually no improvement in sound quality over the CD, but they can be easily transported and stored on a host of devices.

Anticipating the single biggest consumer shift in a generation, scores of companies are rushing to sell tracks that can be played on computers, mobile phones or a plethora of digital gadgets.

Many of them, such as Coca-Cola which introduced an online download service in the UK last week, are new to the business.

One industry official has estimated the number of new entrants in the online music market would top 50 this year -- from telecoms firms such as Cable & Wireless to retail giant Wal-Mart.

"By the end of 2004, half of the businesses that started will be out of business," Bernoff predicted, likening it to the late 1990s when the world caught the e-commerce bug.

"I haven't seen this level of irrational exuberance since the height of the bubble," he added.

The greater availability of music online appears to be winning some fans over from free file-sharing sites, recent studies show.

But piracy is still costly. Forrester estimated that in the U.S, the largest music market in the world, file-sharing cost the industry $700 million in sales in 2003 among the 12-22 year-old demographic.

® Reuters