"At long last the threat has become the opportunity," claimed John Kennedy, Chairman and CEO of the International Federation of the Phonographic Industry (IFPI).
The IFPI Digital Music Report 2005 found that music fans downloaded well over 200 million legitimate tracks in 2004 in the US and Europe – up from 20 million in 2003. This helped bring record companies their first year of significant revenues from digital sales, running into several hundred million dollars.
The number of on-line sites where consumers can buy music legally has now hit more than 230, up from 50 a year ago, while the number of tracks available for download has doubled in a year to more than one million.
Customer awareness is also a factor. According to the report, iTunes and Napster have become household names internationally, while portable players, led by Apple's hugely successful iPod, and mobile phones, are helping transform the consumer experience of enjoying music and creating new revenue opportunities.
Additionally, consumers are aware of the illegality of unauthorised file-sharing – a consequence, says the IFPI, of the high profile enforcement actions taken by the IFPI and the Recording Industry Association of America over the last year. Over 7,000 actions were launched against file-sharers in 2004, and many more will be filed in 2005, warns the trade association.
Criminal actions against file-sharers have also highlighted the issue, with the US Justice Department announcing only yesterday that it had won the first two federal convictions against file sharers.
Despite encouraging signs, the IFPI report makes clear that much more needs to be done both to promote the digital music business and to fight internet piracy.
Music downloading is still in its infancy, with less than one in 10 people downloading songs and only half of 16-29 year-olds being aware of the existence of legal ways of buying music on-line.
According to the IFPI's figures, there are still 870 million infringing music files on the internet, down from 900 million in January 2004. Of these, infringing music files found solely on P2P networks account for around 760 million, down from 800 million last January and one billion in April 2003.
"The biggest challenge for the digital music business has always been to make music easier to buy than to steal," said John Kennedy. "At the start of 2005, as the legitimate digital music business moves into the mainstream of consumer life, that ambition is turning into reality."
"The record industry's priority now is to licence music – to as many services, for as many consumers, on as many formats and devices for use in as many places and countries as it can," he said. "I am confident that in 12 months' time the digital music market will have grown very significantly around the world. A sector that now accounts for a very small percentage of the industry's revenues is poised for take-off in the next few years."