The Entertainment Industry plays a sour note Online.

The tryouts have not been boffo.

Three pillars of the entertainment industry—music, movies and video games—are facing economic challenges due to the disruptive influences of digital distribution.

“The music industry was knocked off balance by the emergence of the MP3 in the late 1990s and has not recovered, and Hollywood’s two core businesses, box-office receipts and DVD sales/rentals, have stopped growing,” says Paul Verna, eMarketer senior analyst and author of the new report, Digital Entertainment Meets Social Media. “And while the sales of video game consoles and software titles remain relatively strong, the industry’s future is shifting to digital distribution and ad-supported models.”

To take music as an example, spending on CDs and other physical sound carriers dwindled to $5.8 billion in 2008, down 60% from a peak of $14.6 billion in 1999.

“In 2009, the US recording industry will mark 10 consecutive years of declining CD sales,” says Mr. Verna.

US sales of recorded music will drop to $5.52 billion in 2013. This downward trajectory will extend a pattern that began in 2000, when physical sales started to decline after rising dramatically during the heyday of the CD.

“Online will experience healthy growth, mobile will trend slightly downward and physical will continue to plummet at accelerating rates,” says Mr. Verna. “Unfortunately, the sum of online and mobile will not compensate for losses in physical, but it will slow down the rate of those losses to a 2.9% drop in 2013.”

In 2008, single downloads made up the bulk of digital music sales, over $1 billion.

An NPD Group survey revealed a nexus between music and social media, finding that the percentage of US teens who downloaded or listened to music via social networks increased from 26% in 2007 to 46% in 2008.

Many music fans are gravitating to social sites via iPhone applications.

The Pandora app has been a huge success, with more than 4 million users as of May 2009, and about 20% of the 1 million songs per month downloaded through affiliate links were from Pandora’s iPhone app.

“The iPhone was game-changing for Pandora,” says Jessica Steel of Pandora. “It was the first device where the light bulb went off for listeners and those in the industry that Internet radio isn’t about just a Website and a PC anymore.”

“Clearly, this is a period of experimentation for the music business and social media,” says Mr. Verna. “The next step for these services will be to broaden their offerings into a user experience that straddles platforms and devices.”

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