Digital rights management (DRM) -- technology for encrypting and watermarking files to impede unauthorised transmission -- won't work, said Eric Scheirer, Forrester's music industry analyst.
"The basic problem is that DRM is trying to keep honest people honest," he said. "With Napster out there, that's not good enough. It only takes one person to break the encryption, and then the encumbered version is competing the unencumbered version on Napster."
Consumers have spoken, and they demand access to content by any means necessary, he said. "Neither digital security nor lawsuits will stop Internet theft of content."
Napster's power stands as an indication of what Forrester terms "collapse of control." Napster's controversial free music file-sharing service is among the fastest growing Web sites ever. Record company lawsuits against Napster haven't exactly stigmatised online trading of pirated music. Even if Napster dies in bankruptcy, music consumers will move to underground Internet services like Gnutella and Freenet, Scheirer said.
Forrester estimates record labels will lose $US3.1 billion and book publishers $US1.5 billion by 2005 because of file sharing.
Forrester interviewed 50 entertainment companies that produce five different kinds of content -- music, movies, books, video games and television. While executives interviewed said that they will use DRM technology to stop file-sharing and sue Internet companies and consumers that don't respect their copyrights, Scheirer called that effort futile.
Business models that depend on content control won't reap sustainable revenues, he said. "Publishers should treat Napster as a competitor, and not presume it's going to go away. They think of themselves as manufacturing companies," he said of publishers, adding, "but that's not the way consumers think about music. They want to be able to access music as a service."
Sites that embrace artistic works as service to be provided and not a commodity to be manufactured will see the profits that traditional publishers lose, as will artists that move toward self-publishing. Musicians will gain $US1 billion, authors $US1.3 billion, and third-party service companies $US2.8 billion by 2005, Forrester's report said.
However, movie companies have less to fear, Scheirer said. "The ways consumers use music are different from the ways people use movies," he said, noting that the pay-per-view and video rental business model serves consumers in the way they want, and it provides a cushion for the movie industry to transition to digital distribution over time.