A new report from research firm In-Stat predicts that online music sales will account for 40 percent of all music sold by 2012.

For perspective, digital music was 6 percent of the world wide market in 2006, and just 10 percent in last year. So per In-Stat's estimate, the proportional market will increase 30 percentage points in five years.

A dramatic illustration of this trend can be found in the industry's shifting leader board. NPD Group recently reported that Apple has eclipsed Wal-Mart as the nation's leading music retailer.

In explaining the dramatic growth In-Stat is projecting, the analysts cited the sustained demand for downloads of individual songs, increasing broadband uptake, and the expanding inventory available in online catalogs.

Of course, the record labels are still struggling with ways to regain control of the digital music business from Apple, so you see them striking deals with MySpace and Amazon to offer their content free of digital rights management (DRM) software, a concession most of them have not yet made with Apple. In-Stat cited lingering DRM restrictions as a drag on the rise of digital music, but the overwhelming popularity of iTunes suggests that it might not be so big of a consumer issue after all. At the very least, it seems unlikely to serve as the differentiator that the labels hope it will be as they cast around for an iTunes killer.

In-Stat identified the single biggest anchor on the digital music industry as piracy, also noting that the subscription-based services are still relatively unpopular.

Post courtesy of internetnews.com The Blog