Record sales are down 15% in the US, but Massachusetts-based outfit Forrester Research, which surveyed 1,000 American online consumers, said it saw no evidence of decreased CD buying among frequent consumers of digital music.

The company's principal analyst, Josh Bernoff, said: "There is no denying that times are tough for the music business, but not because of downloading."

Forrester's report adds that record labels could use the internet to revive their fortunes by making it easier for people to find, copy and pay for music on their own terms.

Competition

It predicts that digital music will be worth $2 billion - 17% of the entire industry - by 2007, compared with about $3 million in 2001.

Competition from other media and the economic downturn are more likely causes for a fall in music sales, the report said.

The big five record labels - BMG, EMI, Warner, Universal and Sony - along with several independent labels, have launched online services in the past year.

But Pressplay, MusicNet, FullAudio and Rhapsody have not captured the imagination of consumers in the same way as unauthorised sites like Napster and Audiogalaxy did.

Forrester predicts the major labels will be able to fulfil demands of internet consumers within the next three years, with labels endorsing a standard contract which consumers would sign that would support CD burning and playback on a range of different devices.