Digital revenues for record companies hit $5.2bn in 2011, up 8% year-on-year.

The International Federation of the Phonographic Industry (IFPI) Digital Music Report for 2012 found that a slower rate of decline in physical sales meant that overall the market’s drop slowed to 3%, at around $16.2bn.

Users of subscription services also increased, particularly in Sweden, the home of Spotify, where subscription accounted for 84% of digital revenues in the first ten months of 2011.

But despite the growth in online revenue, IFPI CEO Frances Moore said that there is still a lot of work to be done to combat internet piracy and illegal downloads.

Our digital business is progressing in spite of the environment in which it operates, not because of it. In 2012 the momentum needs to build further. We need legislation from governments with coordinated measures that deal with piracy effectively and in all its forms.”

Moore’s comments come a week after several prominent websites took their services offline for a day as part of the protest against SOPA and PIPA – legislation currently working its way through US Congress which seeks to crack down heavily on sites guilty of hosting copyrighted material.

The IFPI advocates a combination of graduated response, site-blocking and other measures to tackle internet piracy.

It said that following the introduction of Hadopi in France, which sent government warnings to users of peer-to-peer sites, iTunes singles sales were 23% higher than they would be in the absence of such legislation.

Highlighting the extent of the problem it faces, the report cites Nielsen statistics which state that that globally one in four internet users (28%) regularly access unlicensed services. 

The IFPI says this is rigging the market for legitimate services, stunting growth and jeopardising investment in music. 

But the report also includes plenty of good news for the music industry. The growth in digital revenues was driven by an increase in both single and album sales, which were up by 11% and 24% respectively.

The top 10 best selling digital singles globally were:

Meanwhile the number of users paying to subscribe to a music service leapt by 65% in 2011 to an estimated 13.4m worldwide.

In some markets digital sales have grown to such an extent that they now account for more than half of total revenues – notably the US (52%) and South Korea (53%)

When seen in the context of how other media industries are faring in the digital marketplace, music companies are streets ahead.

Digital channels now account for an estimated 32% of record company revenues globally, up from 29% in 2010, compared with 5% for newspapers, 4% for books and 1% for films.