• by Erik Sass  @eriksass1, February 20, 2008

CDs will be singing the blues. Digital music sales will pass CDs by 2012, according to a new study from Forrester Research. Forrester says digital sales are set to grow 23% every year for the next five years, topping $4.8 billion by 2010. CD sales will probably sink to $3.8 billion by 2012.

A separate study from Nielsen Music, including SoundScan, BDS and RingScan, says digital sales already accounted for 23% of total sales in 2007. Individual track sales increased 45% from 2006-2007, with 840 million sold, while digital album sales rose 53% to over 50 million. Nielsen also says that physical album sales (meaning, CDs) declined 15% from 2006-2007.

While the digital boom sounds like good news, it presents a gloomy picture for the music industry. The Forrester study, titled "The End of Music As We Know It," notes that new digital sales revenues won't come close to replacing the lost CD revenues. From a high of $14.2 billion in 2000, total revenues will shrink to just $8.6 billion in 2012, if Forrester's prediction holds.

The Forrester study echoes a recent report from the International Federation of the Phonographic Industry, which also warned that illegal downloads outnumbered legal downloads by 20-to-1.

The company's prediction is based, in part, on consumer behaviors measured through a survey of 5,000 American and Canadian consumers. One reason digital sales will grow, for example, is that the average MP3 player is only filled to about 53% of its storage capacity. The researchers also anticipate more DRM-free downloads, via services like Apple iTunes and online social networks.

The spread of DRM-free songs and popularity of on-demand music streaming sites mean there isn't much hope for ad-supported music downloads, Forrester added. Subscription services, however, will grow somewhat, with revenue reaching $459 million by 2012.