mrpayroll

http://www.marketwatch.com/news/yhoo...5709617B481%7D

By Jon Friedman, CBS.MarketWatch.com
Last Update: 11:40 AM ET Sept. 2, 2003


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.

Gloomy trend

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."

Jarring findings

Bernoff's findings could eventually jar the entertainment industry.

Compact discs arrived in the late 1980s and were promoted by labels as a superior way for consumers to own music. The companies claimed that the quality was far better -- even though rock and roll star Neil Young, among others, eventually claimed bitterly that vinyl offered a clearer and more genuine all-round sound. Even though the labels charged more than twice as much for CDs as for vinyl products, the public snapped up CDs and vinyl labels were quickly consigned to be little more than collectors' items.

Meanwhile, sales of DVDs have been billed as the eventual lifeblood of the movie business. Analysts have seen DVDs as the logical progression as a revenue source, coming after cable television distribution and such retail stores as Blockbuster.

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

"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 [video] 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.

"How did we get to these crossroads?" Bernoff asked in the report. "Broadband connections, cheap and widespread storage, and ubiquitous processing power have forever liberated media from physical objects like CDs, tapes and DVDs. But the same technology forces that brought entertainment companies to the crisis point contain the promise of media's salvation -- the ability to create media services that consumers will pay for."


Chris

nemein

CDs/music maybe... although I would be curious to see what their concept of "soon" is. DVDs I doubt it though. While I'm sure there are some people out there swapping movies (and the video on demand thing) it seems there are still enough people out there buying the hard media to keep things going for awhile. The thing that will bring about the end of CD/DVD is a change in media format. People will still want an easy/portable way of taking a personal copy of something to another place. Until there is a major change in that (everyone switching to flash cards or memory sticks or something) I don't see the CD format going away. JMO

marty888

Yeah it'll happen......when "video on demand" offers all movies in their OAR, when "video on demand" lets you go back to access the director's commentary, deleted scenes, documentaries, etc. for no additional charge, at your convenience, perhaps weeks after the initial viewing...

C_Fletch

That article was a giant misleading joke.

I do not know anyone that has used the internet to download music from a music service or rented a movie for that matter. Even pay-per-view is a niche market when comparing the revenue to DVD sales. This guy is in la la land.

HoNuts

Here's my favorite line -

"The idea that you have to get in your car, go to a store and buy (an item) is really out of touch."

Ginwen

"They" have been talking about this as the next big thing for quite a while now.Video on Demand == selling you the same stuff over and over (aka renting), but eliminating the middle-man (blockbuster, etc). Actually, right now, I don't see what incentive studios have for pushing for this anyway, considering the huge cash cow DVD has become.

Also, I think something this will never really take off, since people like to own the movies on a reasonably durable format, hence the popularity of DVD. Good quality "video-on-demand" might be fine for "just rental" movies, but I don't believe it will ever be all that popular (unless we are all forced to move into cubicle-sized apartments).

I'd even be surprised if this happened with music. If I'm going to pay money for music, I'd much rather get the actual CD with the cover art and all that--it's much more satisfying than having 7 gigs of MP3's (or whatever format).

bboisvert

Most people out there have trouble operating their own VCRs (... the 'blinking 12:00' phenomenon...). If he thinks that the average person is going to immediately embrace video/music-on-demand and dump their Blockbuster cards and CD collections... well, let's just say that he is the one who is "out of touch".

This article is pure speculation without anything concrete to back it up. I could probably issue my own report that is likely to hit closer to the mark.

gutwrencher

I prefer to own it....I'm a collector. I want to have a complete film library sitting on my shelf, but not by downloading. true...I have about 2,000 toones I've got off the internet....but I still like owning it the good ole fashion way.

pdjennings

Never.

One of the main reasons people collect CDs and DVDs is the "it's in my hand, to own" factor.

Some people thought books were going to be extinct after the computer hit too.

Class316

These “in demand” services will never get big for a simple reason: You cannot beat free. I wonder why it’s so difficult for all these corporate big shots to get in their heads. Even if it’s 99 cents for each song or movie, you simply cannot get any cheaper than “free”. In addition, no one is going to pay to watch a streaming video just once when you can download a superior quality version, keep it forever, and of course it’s free!!

CDs will probably die soon but because it’s an outdated format. There is no real advantage it offers over downloading mp3s and burning. But for DVDs it’s either difficult or impossible to have the exact same video quality and extras by downloading and burning. Especially with double layer discs. So that’s why it probably won’t die soon.

Of course, in some cases downloading does offer advantages over legal discs, like when it comes to censorship.

pdjennings

I would greatly disagree with you there. MP3 compression, while still pretty darn nifty, is extremely lossy when compared to the CD source. IMHO.

PixyJunket

I agree as well.. unless you have poor equipment, the difference is there.

Class316

For most people, convenience and flexibility of MP3s more than makes up for the loss of quality (and the price of CDs). A couple of hundred thousand people with $10,000 worth of audio equipment will not save or kill a format. If this were the case there would be millions of DVD-As and SACDs by now. It is your everyday housewife, teenager, 8 year old Child, etc, etc that decides.

edytwinky

Not really a case for the DVD to go obsolete any time in the near future.

Jepthah

What stupid nonsense. Disc-based media (DVDs and video games/computer software) are selling better than ever. The fault of the poor CD sales are solely the major record labels' and the Gestapo of music (RIAA's) fault. If they didn't run their business like price-jacking unfriendly and paranoid convenience-store owners who follow the customers around with crowbars their sales wouldn't be down to this extent and their profits would be just fine.

Quatermass

Video on Demand might find a small market, but I don't think the movie rental stores have anything to worry about. The amount of bandwidth necessary for streaming a movie into a single customer's house is feasible, but what about as few as 10,000 simultaneous customers? It just seems impractical. Also, as bboisvert said, I think it will require too much effort for most people to want to "hassle" with. I'm still amazed at the number of people I know (smart, professional types) who can't tape a TV show with a VCR. I thought TiVo was doomed to fail, because it seemed like an expensive and unnecessary way to accomplish something that could already be done with a $50 VCR. Obviously, I was wrong about that.
Not to get too far off the subject, but it is because of the movie rental industry that I think HD/Blue-Laser DVDs will never catch on. I can't imagine Blockbuster trying to explain to the average renter that this DVD will not play in their player. The discs are exactly the same size and shape and they will have to either hire twice as many people to handle the returns or try to explain it to each person at the checkout. I think the HD DVDs will most likely become a purchase-only option for Videophiles, and therefore not profitable enough for the studios, unless they charge an arm and a leg for them.

milo bloom

Good grief, people having been dubbing off records since the creation of the cassette in the 70's* Fairly priced, well made pre-recorded material will always have a market. Just a few weeks ago, I discovered a little independent music store in Downer's Grove, IL, and he had a ton of import singles. When I saw the REM one, I knew I had to have it, even though I admitted to the guy, I'm going to listen to this once, then it's going to go on my shelf. But I gotta have it.

I think a good analogy is Star Trek 2, where Spock gives Kirk an actual paper copy of A Tale of Two Cities. He could have downloaded it into a reader in microseconds, but Spock knew Kirk was the type that would appreciate the presentation.

I think this type of thinking will keep VOD from succeeding for some time, that and the fact that most people still have no idea how to work their computers beyond Minesweeper (hate that game...hate it so much...)






*Might have been sooner, but that's when it seem to pick to me.

Meatpants

Exactly.

Conceivably, it's just as easy to read a book off your PDA than an actual book. But I still see everyone on the train with a book in their hand.........

dvdisoil

perfect. waiting for the day when all my DVD's go OOP . i can make a living selling them on ebay

philo

Video on demand through your local cable provider might take a chunk out of Blockbuster if the selection is there, it's priced competetively and people know about it. Even if it costs a little more I think people would pay just for the convenience.

Your average viewer isn't interested in OAR, director's commentary, or any of the extras we look for in DVD. Movies are disposable entertainment for most. Watch once, move on to the next. Since those same people rent more often than buy anyway, I don't see this hurting sales especially with the low cost of some titles.

and yes, CDs and DVDs will be obsolete... eventually.

DouglasRobert

The only time that CD's/ DVD's will become obsolete is when some new form of format comes around. Maybe something chip based or cartridge based, like a videogame cartridge. While the chip based format would save on storage space, it would likely be easily stolen at the retail store, so either some sort of case or in a self contained case that you would slide into the player and the player would remove the chip (like the old CED Video Disc system)

Also with a chip based system, the player itself would be smaller and would have little or no moving parts.

Not to sound like a nerd, but something like in the Old Star Trek series, where they would view computer information or video on those thin colored plastic rectangles.

Enough of my dreaming, but why CD's is probably failing is that they are:
1. Too expensive (The companies have been charging around $15.00 for almost every CD out there, even old ones)
2. No Extras. (While some are offering a free DVD with the CD, people want more than just music now days)
3. Format war between SACD and DVD-Audio has slowed acceptance of higher quality CD's with extras.

Regarding #2, it would be nice if CD's had some of the same extras as their DVD counterparts. Production Notes, On-Screen lyrics, musician audio commentary, interviews etc. Maybe the DVD-Audio or SACD do have these features. Today people want more bang for their buck.

DVD-Audio also probably would sell more if the players were only about $50.00 or $100.00 more than a standard DVD player. I don't know what a DVD-Audio player goes for, but I guess it's expensive.

Even if DVD or CD was to become obsolete tomorrow, it doesn't mean that people would stop owning them. People still own LP's, audio cassettes, even 8-tracks, and they enjoy them still today.

I am using broadband, and I once tried downloading a part of a movie. Not only did it take hours to do, it was not the correct one. People don't want to wait hours to download movies, just the movie and no extras either. The only way video on demand could work is a vast improvement in current technology that would greatly improve the speed of the download to a matter of minutes instead of hours.

Just my babbling on the subject

Josh-da-man

And some people are still making this claim, despite the fact that e-book readers never took off.

Now CD and DVD are declared dead before there is any kind of "streaming" (and, presumably pay-per-view) replacement. Not only does one NOT EVEN EXIST, but it's not even proven that the consumers want it.

There's a decidedly low-tech saying about not counting your chickens before they've hatched, but the gadget-freak loser contingent would probably tell me it's obsolete.

Josh-da-man

Yeah, that line sounds like it comes from one of those "I can buy my groceries online and have them delivered to my door, so I can go months without leaving my apartment" jagoffs that were on all of the television news programs about six years ago. Before the dotcom crash.

mrpayroll

But VOD should never cost more than the average rental. There is very little material cost for the movie companies to put VOD out to the cable/satellite companies. Right now, they may make roughly $8 per sale for each DVD that they sell to Blockbuster. But Blockbuster can make many times that, by renting it over and over again.

With VOD, the income to the movie companies is only limited by the amount of demand by consumers for each movie. So I would actually expect to pay less than the rental price of a physical DVD, because the material cost is much less, plus the income can be much greater for each studio.

Chris

Coral

CDs may be on their way out, but DVDs are here to stay.

Video on Demand has too many disadvantages.