The global recorded music market in 2006 slipped by 5% year-on-year, according to new figures published by the IFPI.

The combined market of physical and digital music dropped to $19.6 billion last year, down from $20.7 billion in 2005, the IFPI reports in "Recording Industry In Numbers 2007."

Against a backdrop of shrinking CD sales and piracy, however, the value of physical music shipments was down 11% to $17.5 billion last year.

The results "reflect an industry in transition," IFPI chairman/CEO John Kennedy said in his opening message.

"We hoped that the decline in physical sales would be offset by the increase in digital sales - giving us the 'Holy Grail'. But while digital sales have grown as expected physical sales have fallen by more than expected," he acknowledged.

"Unfortunately this trend has continued in 2007. Physical sales continue to drop at a faster pace than we had hoped for, particularly in the U.S. (down 7.3%) and now also in the U.K. (down 6.7%) - a market that had shown incredible resilience."

The lions' share of blame, said Kennedy, should be levelled at piracy, which he described as the single biggest problem the industry currently faces.

Thanks in no small part to the industry's legal actions to shunt copyright pirates, illicit file-sharing is relatively stable, explained Kennedy.

However, with roughly 20 billion illegal files downloaded last year, the volume of illegally-distributed works remains "unsustainably high," he noted. During the same period, a total of 795 million single tracks were legally downloaded online.

On a high note, digital shipments through mobile services and the 500-plus recognized online music services rose 85% to $2.1 billion. The IFPI tracks online, mobile and subscription services, but does not include monophonic and polyphonic ringtone revenues. Digital formats now accounted for 11% of total global shipments in 2006, against just 2% of the overall pie in 2004.

And record labels' income from performance rights collections in 2006 improved by 8% to $728 million. "We believe this sector has tremendous potential," Kennedy said. "Synchronization, ad-funded business models and artist/label joint ventures are also areas showing exciting growth."

Despite the global decline, 12 countries - Japan, Russia, South Africa, South Korea, Ireland, Argentina, Indonesia, Hungary, Malaysia, India, China and Venezuela - posted growth in their respective record music markets during the year.

The top 10 respective recorded music markets in the world last year were the United States, Japan, United Kingdom, Germany, France, Canada, Australia, Italy, Spain and Mexico.

On digital value alone, the top 10 markets were the United States, Japan, United Kingdom, South Korea, France, Germany, Canada, China, Italy and Australia.