Napster-like sites will cost record labels $3.1 billion by 2005.
And what's more, lawsuits against these sites that use music piracy won't stop punters using them. That's according to a report by Forrester Research, which says book publishers are also in the firing line - they can expect to lose around $1.5 billion by the same year.
"Consumers have spoken - they demand access to content by any means necessary," said Eric Scheirer, an analyst at Forrester. "Neither digital security nor lawsuits will stop Internet theft of content."
But this doesn't mean death for the music and publishing industries - instead it will cause a shift in their power structures.
Scheirer reckons it is up to traditional publishers to change their act rather than fight the sites - "regardless of whether they consider Napster right or wrong".
"They must create compelling services with the content consumers want, in the formats they want, using the business models they want," he said.
Forrester quizzed 50 entertainment companies in the fields of music, film, books, videos and TV for the "Content out of Control" report. Execs interviewed warned they would try to use DRM technology to stop file sharing, and said they would sue dotcoms and customers that infringed their copyrights.
But this approach is doomed, according to Forrester. DRM can't prevent filesharing, while business models that depend on controlling content will push customers away.
"Consumers don't want business rules or restrictive technology - and it only takes one person to break down the security barriers and share content on the Net. Lawsuits will only succeed in driving consumers to underground Internet services like Gnutella and Freenet," said Scheirer.
"There will always be a market for content. But as control over distribution slips away from major publishers, a lot of the money they're making today will instead be earned by artists and service vendors," he added.
In order to survive, the report advises entertainment companies to change into service organizations and develop service offerings for punters and artists. They will need production and promotion skills to find, develop, and market independent artists, while they'll also have to sell their expertise in production, editorial services, and cross-channel brand building.
In Napster-related news, the site seems to be causing bickering at the highest levels in the US. Senator Orrin Hatch of Utah, the anti-Microsoft Republican, this month wrote to a federal appeals court regarding a brief filed by the Department of Justice and the US copyright office slagging off the song-swapping service. The letter, sent to the US Court of Appeals for the Ninth Circuit in San Francisco, apparently stated that these views did not represent the opinion of the whole US government.
Meanwhile, some bands are taking matters into their own hands to foil fans downloading their records on the Net for free. Canadian group Barenaked Ladies has started distributing a bunch of impostor files which when downloaded do not contain its tunes but are actually an advertisement for its latest album. ®