When people stop buying Cd's and record labels realize they have to focus entirely on taxing downloads. I'm sure that will take some time since there are so many "collectors" out there that would be lost without a physical copy..
I read in the news today that in the UK the company who sell the most CD singles are now going to phase them out by the end of august, and focus on promoting download sales instead, because singles just are not selling.
So yeah, it is already happening. But I think it would be a long time before albums go - I will still buy an album from a band/artist I really like, for the album art, to have the actual product in my hands, even if I hardly ever play CDs aprt from in the car.