Despite initiatives by ISPs to stop illegal file sharing, 95 percent of online music downloads are completed illegally, says the International Federation of the Phonographic Industry (IFPI).
According to the industry body, global music downloads rose by 25 percent in 2008 and were worth around $3.7bn (£2.5bn). Digital music downloads now account for 20 percent of all music sales.
However, only 1.4 billion tracks were legally downloaded, compared to the 40 billion digital audio files that it estimates were shared illegally last year.
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In the UK alone, 110 million single tracks and 10.3 million digital albums were purchased in 2008.
"Governments are beginning to accept that, 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 and chief executive of IFPI.
In July, six of the UK's largest ISPs, including BT, the Carphone Warehouse and Virgin Media, signed an agreement with the British Phonographic Industry (BPI) that they would issue warning letters to customers suspected of illegally downloading digital files.
The agreement is the first step toward implementing a 'three strikes rule' that would result in illegal file sharers having their broadband connection suspended and possibly even terminated if they continue to offend after being issued with a warning letter.
See also: Christmas sees record music downloads