Australia's record market in 2010 endured an episode of bloodletting as the value of the business tumbled by 13.9%, according to a just-released reporty by the Australian Recording Industry Association (ARIA).

Digital music product enjoyed strong growth, but it wasn't enough to offset diving CD sales. All told, the record market was valued at Australian $384 million, down 13.9% on the corresponding result for 2009. Currently, the Australian dollar is roughly the equivalent value of a U.S. dollar.

A miserable picture for the record market was expected, but a double-digital decline comes as a hefty blow in the context of Australia's strong showing of recent times.

In 2009, the Australian record market actually rose from the previous year, prompting the IFPI and its former chairman and CEO John Kennedy to declare it as one of the "Holy Grail" markets, one where the growth in digital had outweighed the drop off in demand for physical product.

In 2010, Australia dropped the "Holy Grail".

Studying the figures, it's obvious the CD format was where all the serious damage was done. Shipments of CD albums dropped by 21.2% in value, to Australian $252 million, and the format declined by 16% in volume to 23.5 million albums. In dollar terms, the market for CD albums alone shrank by Australian $68 million, a sum $6 million greater than the contraction of the country's overall record business. According to ARIA's full-year trade report, all physical formats experienced sharp dips in 2010.

The steep fall is no cause for alarm, explains ARIA chairman Denis Handlin. "Our local industry continues to manage its way through times of challenge and transition," explains Handlin, "and we are very encouraged to see that consumers have continued to embrace legitimate digital purchases, as illustrated by the ongoing growth in digital products."

Digital continues to enjoy strong growth. Driven by substantial gains in sales of digital singles and albums, the digital format reported a 31% rise in value to Australian $104 million, and a 32% gain in volume to 55 million units. The value of the digital singles (Australian $31 million) and albums (Australian $56 million) formats rose by more than 40%. Mobile master ringtones played an ugly tune, contracting by 24% for a value of just Australian $4.7 million.

Handlin went on to say that the "illegal consumption of music" was a constant challenge to the industry and that "we continue to work with government and ISPs to address this matter."

Handlin's comments were echoed by IFPI CEO Frances Moore, who recently admitted to Billboard.biz that Australia's downturn was a real "concern". Speaking last month after the unveiling of the IFPI's "Digital Music Report," Moore said, "There is concern that Australia is not moving as fast as some other countries, such as New Zealand or South Korea, to create a framework for protecting intellectual property online." She added, "The increase in the market last year followed several years of steep decline and the concern has to be that this trend is now continuing. Australia has always punched above its weight in terms of producing and exporting great music. If investment in new artists is to be sustained then the government needs to do more to introduce the rule of law to the Internet."

Australia currently hosts more than 20 digital music services, including the ad-supported Guvera site, Sony Music's Bandit, and EMI's and AAPT's groundbreaking subscription service, all of which were highlighted in the IFPI report.

ARIA's CEO Dan Rosen looked for some rays of light amid the gloomy trade figures. "Australians are consuming more music than ever before. Our goal as an industry is to make it easier for people to support the artists they love by embracing innovation and supporting new ways to sell music. Digital distribution is strong and we expect to see continued growth this year in digital revenues." This year, explains Rosen, is on track to be "a monumental year for our industry, with the 25th anniversary of the ARIA Awards, some big Australian acts scheduled to release new albums and a growing number of Australian artists strutting the international stage."

Those hotly anticipated homegrown albums expected in the coming months include new sets from the Living End, Delta Goodrem, the Sleepy Jackson, the Presets, Pete Murray, and a Powderfinger "Greatest Hits" package.