The compact disc has at least another five years as the most popular music format before online downloads chip away at its dominance.
Technology consultancy Jupiter Research said in its annual report that in 2009, European music fans will buy 836 million euros ($1 billion) worth of music in the form of digital downloads and subscriptions to Internet radio services.
At that level, digital music revenues will account for roughly 8 percent of Europe's estimated 10.2 billion euro music market. The study does not take into account the surprisingly successful market for mobile phone ring tones.
The piracy-battered music industry is desperate to see industry-backed download services become a hit with consumers to derail the popularity of free file-sharing networks such as Kazaa and eDonkey.
But trying to predict growth in the nascent digital music sector has proved extremely difficult. Last month, Forrester Research published a much more bullish forecast that the Western European digital music market would be worth 3.5 billion euros--or 30 percent of the overall European market--by 2009. Jupiter disagreed.
"Although Europe's digital music market has finally begun to take off after a sluggish start, it will remain a relatively niche market," said Mark Mulligan, a Jupiter analyst.
Jupiter said the venerable CD--not the download--will remain the best-selling format throughout the remainder of the decade as the installed base of CD players continue to dwarf that of MP3 players and other digital music devices.
"Digital music distribution will be an important alternative revenue channel for the music industry, but it is not about to replace the CD," he added.
As in the United States, Europe's online music market is dominated by Apple Computer's iTunes music store. The recent launches of Napster and Sony Connect, plus dozens of retailers who resell tracks from Loudeye's OD2, have created a brutally competitive market in Europe.
They are battling for share of a digital music market, which is expected to grow fourfold this year.
Britain, the world's third-largest music market, will be the top online music market in Europe, accounting for 30 percent of online music sales in 2009. Over the next five years, the biggest catalyst for growth will be the sale of digital music players such as Apple's iPod and Sony's new hard-disc Walkman.
But a maze of incompatible play-back and digital rights technologies could depress growth during that period, Jupiter said.
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