The Organisation for Economic Co-operation and Development (OECD) report found a "pronounced" fall in overall global CD sales of 20 percent between 1999 and 2003, while the number of simultaneous users on all peer-to-peer networks reached almost 10 million in October 2004.
Digital music piracy is acknowledged as a problem by the OECD but the report cites other factors -- such as the rise in the number of entertainment sources -- as being more likely to have had a significant impact on music sales.
"It is very difficult to establish a basis to prove a causal relationship between the size of the drop in music sales and the rise of file sharing. Sales of CDs, as well as the success of licenced online music services are likely to have been affected to some degree by a variety of other factors, for example physical piracy and CD burning, competition from other, newer entertainment products and faltering consumer spending in some markets," the report said.
And while there was a large fall in CD sales in the US, other countries, including France, Germany, Japan and the UK, actually experienced steady or growing CD sales.
The OECD questions the viability of some music download business models and warns that the music industry needs to find a balance between reducing online piracy and developing models that are attractive to consumers, as well as providing existing and new participants in the online music arena with a growing stream of revenue for the creation and legitimate distribution of original recordings.
The report said: "Online music providers still seem to struggle making profits at current prices, with demand growing from low levels and having to compete against unauthorised downloading. In the current, low-volume market, digital economies of scale have not yet been realised. Some of the fixed costs of labels to produce artists stay essentially the same as before. Moreover, the digital distribution of songs is far from costless."
The report was compiled by Dr Sacha Wunsch-Vincent and Dr Graham Vickery of the OECD's Directorate for Science, Technology and Industry.
Silicon.com's Andy McCue reported from London. For more coverage from Silicon.com, click here.
There are other factors, too.
The general price of CDs has not fallen significantly in many years, whereas the equipment on which they are played has done so.
Video DVDs offer greater value, often costing less than the CD, and a greater experience for music lovers.
But the biggest problem is that today's albums consist of a couple of really good song, and handful of average songs and a lot of bad ones. The good to average tracks are then released a singles and people have finally realised that they are being ripped off.
By buying songs individually online, they can create their own super-albums where ALL the songs are good.
And then there is the issue of copyright. Does the copyright apply to the music (the perfomance) or the medium? If someone has already purchased the music as vinyl or maybe MiniDisc, they should be able to convert that music to an mp3 or to copy, clean and burn music from a vinyl source to CD for playing in a CD player. Instead we are asked to buy the music again, just because it has been repackaged in a different medium.
Record companies have had it too good for too long - the music buying public is biting back.