Record companies are reeling after global sales figures revealed the damage caused by rogue music websites.
Music fans have shunned shops to download their favourite tunes from no-fee sites such as Napster and MP3.com, cutting last year's global record sales by 1.2% to £25.8bn.
The figures from the International Federation of the Phonographic Industry showed the US market was hit the hardest, with sales of singles falling 46% in a country which accounts for 38% of global record purchases.
Further pressure has been added by the downturn in the US economy, with consumers cutting back on luxuries such as CDs.
"The downturn in the US brought down the overall sales figures. We also saw the first evidence of the impact of free online music," said the IFPI.
However, the IFPI figures show the sixth successive year of decline in record sales, as mobile phones and video games compete with CDs for consumers' disposable income.
Napster has paradoxically thrown a lifeline to the record industry by offering it a new and innovative way to boost flagging sales.
But this did not stop the major record companies from suing Napster into submission for breaching copyright laws and then establishing their own online operations.
A new battle will now be fought to establish a standardised service, with Vivendi Universal and Sony forming Duet and EMI, Bertelsmann and AOL Time Warner backing MusicNet.
But analysts said the new sites may not be enough to solve the fundamental problems of a shrinking market.
"The industry has to find a way of turning it around. There will be interest in the new services, but we have no idea what the music industry will charge. We need to know what will be offered, so it is way too early to say," said Helen Snell, analyst at ABN Amro.
Consumers will also have to fight their way through a cluttered online music environment, with MTV and Microsoft also offering alternative downloading services.
Internet specialists Jupiter Media Matrix predicts that US online music spending could reach £1.02bn this year, increasing to £3.75bn by 2005.
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