[URL]http://story.news.yahoo.com/news?tmpl=story&u=/nm/20030903/music_nm/media_piracy_dc_1[/URL]\n\nVirtual Delivery Seen as Death to Discs\nTue Sep 2,10:05 PM ET\n\nAdd Entertainment - Reuters to My Yahoo!\n\nBy Jesse Hiestand\n\nLOS ANGELES (Hollywood Reporter) - Hollywood will win the war against\nillegal downloading but the battlefield will be littered with\ncasualties, including the DVD and CD formats as physical means of\ndistributing video and audio, according to a Forrester Research study\nreleased Tuesday.\n\n \n\nThe study predicts that in five years, CDs and DVDs will start to go\nthe way of the vinyl LP as 33% of music sales and 19% of home video\nrevenue shifts to streaming and downloading.\n\n\nPart of that stems from the continued proliferation of illegal file\ntrading, which has caused an estimated 0 million of lost CD sales\nsince 1999. But it will be due more so to efforts by the studios,\ncable companies and telcos to finally deliver legitimate alternatives\nlike video-on-demand, Forrester researcher Josh Bernoff said.\n\n\n"The idea that anyone who has video-on-demand access to any movie they\nare interested in would get up and go to Blockbuster just doesn't make\nany sense," Bernoff said. "(The decline) begins with rentals, but\neventually I think sales of these pieces of plastic are going to start\ngoing away because people will have access to whatever they want right\nthere at their television set."\n\n\nWhile consumers with VOD capabilities should grow within five years\nfrom 10 million to 35 million, or about a third of all U.S. television\nhouseholds, the association that represents disc makers does not\nbelieve that output will slow.\n\n\nIn fact, the Princeton, N.J.-based International Recording Media Assn.\nestimates that the number of DVDs replicated each year in North\nAmerica will increase from a current 1.4 billion to 2.6 billion by\n2008.\n\n\nCD replications, though, are forecast by IRMA to fall by 15%-18% in\nthe next five years, about half the rate of decline estimated by\nForrester.\n\n\n"The consensus in the manufacturing business is that there will be a\ndecline, but we don't see as drastic a decline," IRMA president\nCharles Van Horn said. "We see growth (in video and DVD), and I don't\nthink it will be because there are more pipelines to feed. It will be\nconsumers buying discs."\n\n\nAnalysts also caution that the shift from hard copy to virtual\ndistribution could be more gradual.\n\n\n"People like walking into the store and seeing the product. It's part\nof the entertainment," Barrington Research Associates analyst James\nGoss said. "The studios would be just as happy to sell something in a\nstreamed form or a hard disc form. But once you download it to your\ncomputer, you're probably going to burn it onto a CD or DVD, so you'd\nend up with the same optical storage issues."\n\n\nThe Forrester report lists a number of winners and losers from the\nexpected changes.\n\n\nAmong the beneficiaries are Internet portals (news - web sites) that\nenable on-demand media services, broadband suppliers such as cable and\ntelcos and the creative community, which would profit from the removal\nof manufacturing and distribution costs and constraints. AOL Time\nWarner's decision to sell off its disc manufacturing plants was said\nto be proof of this trend.\n\n\nMedia conglomerates could be among the losers if they do not have\ncontrol of emerging means of distribution like VOD, Forrester said.\nSuch retailers as Tower Records and Blockbuster will certainly feel\nthe pain as sales and rentals shrink, though they may be able to\nsustain business by associating themselves with newer on-demand\nservices. Major retailers including Wal-Mart and Best Buy are expected\nto survive by shifting CD and DVD floor space to sales of media\ndevices.\n\n\nThe shift could also present several opportunities for companies if\nthey move quickly.\n\n\nTelevision companies have about three more years to release shows on\nDVD. By 2006, it is estimated that negotiations will start to focus on\nmaking content available on cable and Internet "basic VOD" tiers.\n\n\nMovies studios are also urged to press the development of\nInternet-based alternatives to cable VOD for movies-on-demand.\n\n\n"On-demand media services have the potential to turn pirate losses\ninto gains even as they break the disc-based shackles that now hold\nback entertainment," the report concludes.