Surging digital sales and a banner year for local repertoire underpinned massive volume growth in the Australian record market in 2006.

The Australian wholesale music market grew in volume by 27.12% to more than 80 million units last year compared to slightly above 63 million units in 2005, the Australian Recording Industry Association (ARIA) reported.

But heavy discounting saw the value of sales drop by 3.11% to A$511.7 million ($419.6 million), from A$528.2 million ($435.7 million) in the previous year.

Digital sales grew 250% year-on-year to A$27.8 million ($22.9 million). Digital music now accounts for 5.5% of total music sales by value, up from 1.5% at the end of 2005.

"Australian record companies are showing enormous enthusiasm and flexibility in the way they're embracing digital opportunities," ARIA's Sydney-based CEO Stephen Peach tells Billboard.biz. "But they haven't lost sight of the fact that almost 95% of sales are physical. The mantra is, to let the consumer decide which channel they want."

Peach says anecdotal evidence shows that catalog makes up a large segment of digital sales, and that digital channels are attracting consumers aged over 45 to return to buying music.

Australian online sites offer 3 million tracks. Peach expects a site offering a subscription model will emerge in the next 12 months. Paul Buchanan, Sydney based GM of digital music service provider Soundbuzz Australia, predicts the first local subscription model will emerge for cell phones.

"The population of Australia and the amount of (cell) phone owners are the same, 20 million," Buchanan says. "Australians have well and truly adopted the (cell) phone as their portable music player."

Today's ARIA figures showed that mobile-based revenues made up almost 50% of the overall digital market in 2006.

"A key reasons for the Australian market's growth is significant support for local acts," Peach says. "Having seven Australian albums in the Top 10 sellers of the year is an all-time record."

Domestic albums made up 37.7% of the Top 100 albums of the year, up from 27% in 2005. Singles accounted for 27.2%, up from 22%.

The biggest-selling Aussie album acts were Human Nature (Sony BMG), Wolfmother (Modular/Universal), Damien Leith (SonyBMG), Rogue Traders (Sony BMG), Eskimo Joe (Mushroom/Warner), The 12th Man (Virgin/EMI) and The Veronicas (Warner).