The IFPI has estimated that 95% of music downloads are illegal, according to its 2009 Digital Music Report.

The estimation is the result of a three-year study in 16 countries, which also indicated more than 40 billion files were illegally file-shared in 2008.

In the report, which was released today, the global recording industry body identifies the importance of working together with Internet Service Providers (ISPs) to deter consumers from illegally acquiring music content.

In a statement, IFPI chairman and chief executive, John Kennedy said, "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."

During 2008, France led the charge with a draft Creation and Internet Law in which ISPs warned continual copyright abusers before cutting their Internet connection as a last resort.

In July, the U.K. government brokered the memorandum of understanding between the recording and film industries and the six biggest ISPs (Billboard.biz, Oct. 27), while also initiating a consultation on legislative options for dealing with Internet piracy.

Similar action is also being taken by New Zealand in February, while governments in the U.S., Italy, Australia, Japan, Hong Kong and South Korea are all in discussion about the issue.

On the upside, the report shows a sixth year of digital music expansion in 2008, growing an estimated 25% to $3.7 billion in trade value. Digital platforms now account for around 20% of recorded music sales, up from 15% in 2007.

Singles track downloads still drive the online music market -- up 24% to 1.4 billion in 2008-- however a healthy growth of 36% has indicated rising consumer interest in the digital album sector.

Hip-hop star Lil Wayne topped the list for single-track digital sales, with Lollipop ticking over 9.1 million units worldwide -- 1.8 million more than the highest selling digital single of 2007.

The growth has been attributed to the wider range of music services available online, including new "music access" services such as Nokia Comes With Music, Sony Ericsson's PlayNow plus and Danish ISP TDC's PLAY, and an increasing number of advertising-supported and a-la-carte services.

The anticipated U.S. launch of MySpace Music in September and a growing number of labels inking deals with video streaming web site YouTube were some of the higher profile developments of last year.

As they adapt to the changing environment, music companies are increasingly turning to third party licensing. The games sector was a big attraction in 2008 and as a result, music-related releases (such as Guitar Hero and SingStar) made up 15% of overall game sales in the U.S. in the first half of 2008 (NPD Group).

The growing consensus towards DRM-free music saw many services make the switch -- a sign of things to come for market leader Apple, which just recently announced all four major labels had agreed to sell DRM-free music on iTunes (Billboard.biz, Jan. 6).

"The recorded music industry is reinventing itself and its business models," continued Kennedy. "Music companies have changed their whole approach to doing business, reshaped their operations and responded to the dramatic transformation in the way music is distributed and consumed."