The industry has got to go back to basics and reinvent itself. It needs to look at the whole concept of ownership of music

Helen Snell, ABN Amro

Only the UK and France saw an increase in sales of CDs and cassettes, with sales in the United States, which accounts for 40% of the world market, down 5%.

Japanese sales fell by more than 7%, while sales in other big markets such as Brazil were also well down.

Earlier this week, shares in the UK's biggest record company EMI, home to artists such as Radiohead and Mariah Carey, dived more than 35% after it issued a profit warning.

Turning the industry around

German group BMG added to the gloom later in the week with hefty full year losses.

All five major labels, Universal, Warner, Sony, BMG and EMI, which together account for 75% of world music sales, are under pressure to turn the industry around.

EMI owns the Beatles' back catalogue

"What we are seeing is a serious structural shift in the music industry.

"It's not a short-term problem. On a compound basis over the past five years, music sales have fallen 1.5% each year," said Helen Snell, analyst at investment bank ABN Amro.

"The industry has got to go back to basics and reinvent itself.

"It needs to look at the whole concept of ownership of music."

Michael Nathanson, an analyst at U.S. fund manager at stockbrokers Sanford C Bernstein, said: "This isn't a robust industry."

"The industry hasn't grown since 1996.

"Overlaying that with the arrival of a disruptive new technology like the Internet and you have a recipe for problems".

CD burning

Keith Jopling, director of market research at the International Federation for the Phonographic Industry (IFPI), said it was the first time the organisation had reported such a big drop in sales.

We have seen global music sales slowing down, at the same time the demand for all the media recquired for CD burning, the hardware and software, has skyrocketed

Keith Jopling, International Federation for the Phonographic Industry

He blamed the economic slowdown and the growing popularity of CD 'burning' equipment, which allows music fans to copy their favourite tracks on to blank discs.

"We have seen global music sales slowing down, at the same time the demand for all the media recquired for CD burning, the hardware and software, has skyrocketed," Mr Jopling told the BBC's Business Today.

"In Germany, they have had a difficult market for a number of years and a real trend in this CB burning and downloading of music.

"There is no other explanation really.

"Repertoire is strong in Germany, music companies are doing well and investing in local talent.

"So we think it is probably some kind of across the board change, which is probably partly the economy and partly this mass-CD burning trend," he added.

Popular releases

Mr Jopling said the demand for CD burning equipment in Germany was twice what it was in the UK and other European countries.

But he also pointed to popular releases from artists such as Stereophonics, Travis and Shaggy which had driven sales in the UK.

The Mercury music prize, the annual award for the best album, was also a good vehicle for driving sales in the UK, he said.