Nearly all music downloaded online infringes copyright laws, a report from the International Federation of the Phonographic Industry (IFPI) has claimed.
Digital music sales now account for around 20% of global music sales, the IFPI's Digital Music Report 2009 found, though in 2008 approximately 40 billion files were shared illegally.
The IFPI's report went on to estimate that in 95% of cases, artists and record labels see no royalties whatsoever when music is downloaded.
The report urges ISPs to take a more proactive role in preventing piracy.
"In the debate over "free content" and engaging ISPs in protecting intellectual property rights, doing nothing is not an option if there is to be a future for commercial digital content," said John Kennedy, chairman of the IFPI.
A report from the Department for Business, Enterprise and Regulatory Reform (BERR), Digital Britain, is due to be issued at the end of the month, outlining how the government, the music industry and ISPs should tackle online piracy.
Commenting on the findings of the report, Steve Purdham CEO of ad-funded music service We7 said: "A figure of '95% of music tracks downloaded without payment' can be on one hand scary or on the other hand an indicator of a tremendous opportunity. It would be more scary if current revenue forecasts showed that the 5% paid for was the real size of the market."
"Overall its now about understanding new opportunities and making things happen, the digital announcements in the last 90 days shows the tidal wave of possibilities, some will fail some will succeed - there are still challenges but the willingness to try is far more embedded than the fear of change," Purdham added.
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