The music industry is still losing out to internet pirates on a huge scale, with an estimated 95% of music available online being downloaded illegally.
Despite record-breaking growth in digital sales of music from sites such as iTunes, the majority of music downloaded in 2008 was done so without payment to either the artist or record label, according to a report by the International Federation of the Phonographic Industry (IFPI).
The industry is "transforming" its business models, IFPI said, turning to marketing ideas such as Radiohead's "pay what you like" album In Rainbows and Coldplay's move to give away tracks to promote their album. "Music companies have changed their whole approach to doing business," said John Kennedy, chairman and chief executive of IFPI.
However, research carried out in 16 countries by the record industry body found that an estimated 40bn files were illegally shared in 2008. The report took responses from a number of consumer surveys over the last three years about downloading habits and compared them with the 2.3bn legitimate online tracks that were sold in 2008. It concluded that piracy rate last year was as high as 95%.
In the UK market alone, the record industry lost £180m last year, and will lose more than £1bn by 2012 if nothing is done, the report found.
The UK saw the biggest increase in digital sales in the first half of 2008 among the top markets around the world, with sales up by 45%. A total of 110m single tracks were downloaded in 2008, up 42% on the year before. Digital album sales also rose sharply, by 65% to 10.3m, and now account for 7.7% of the albums market.
The report, published yesterday, also found that consumer demand for music is higher than ever, despite the dramatic decline in CDs sales last year. The question remains how the industry best deals with that demand and turns it into profit.
The IFPI also said that paid-for single track down loads, up 24% globally in 2008, now drive the online market, with sales exceeding 1.4bn. The biggest-selling single of last year was Lollipop by US rapper Lil' Wayne, with 9.1m downloads globally, 1.8m more than the biggest seller of 2007. Overall, it is estimated that digital music sales are worth £2.5bn. Digital sales now account for around 20% of recorded music sales, up from 15% in 2007.
"There is a momentous debate going on about the environment on which our business, and all the people working in it, depends," said Kennedy. "Governments are beginning to accept that, in the debate over 'free content' and engaging internet service providers in protecting intellectual property rights, doing nothing is not an option if there is to be a future for commercial digital content."
The IFPI points to a new generation of subscription services for digital music as evidence that the industry is adapting. Licensing music to third parties is also proving to be a revenue winner for both the music and games industry, with the popularity of games such as Rock Band and Guitar Hero accounting for 15% of overall industry sales in the first half of 2008.
Top 10 downloads
1 I Kissed a Girl, Katy Perry
2 Mercy, Duffy
3 Sex on Fire, Kings of Leon
4 Rockstar, Nickelback
5 Hallelujah, Alexandra Burke
6 American Boy, Estelle
7 Black & Gold, Sam Sparro
8 4 Minutes, Madonna & Justin Timberlake
9 Run, Leona Lewis
10 Dance Wiv Me, Dizzee Rascal
Source: Official Charts Company