LONDON, ENGLAND, UK (JANUARY 23, 2012) (REUTERS) - The annual report on the state of the music industry is out and the verdict is surprisingly upbeat. Digital music revenues rose

eight percent in 2011 to 5.2 billion USD, but it was not enough to prevent another annual decline in the overall market to 16.2 billion USD from 16.7 billion USD in 2010.

Figures released on Monday (January 23) by record industry body the International Federation of the Phonographic Industry (IFPI) confirmed expectations that a downward trend which began in the late 1990s continued last year.

The good news was that the 2011 decline of around three percent was smaller than the eight percent drop in 2010, and there were signs that the industry was finally beginning to get on top of the rampant online piracy it blames for its woes. IFPI CEO Frances Moore has even started using the word momentum:

"What do I mean by that? Well we've seen the spread of legal services. 23 legal services at the beginning of 2011. Here we are, 12 months later, the leading services are in 58 countries. The consumers, whether it's downloading or subscriptions, we've seen consumers moving towards more legal services and digital revenues are up by eight per cent. We've seen governments in some countries engage in the fight against piracy, whether they are new laws in New Zealand, some new laws in Spain etc. We've really seen some momentum building there," she said.

But despite signs that governments were taking the issue of piracy more seriously, it continued to undermine the recording industry's efforts to return to growth. The IFPI estimated that 28 percent of internet users accessed unauthorized services on a monthly basis. The IFPI report came just days after the U.S. government shut down the Megaupload.com content sharing website, the latest skirmish in the battle against the piracy of movies and music.

Record company bosses are however cautiously optimistic. The president of global digital business at the world's largest music label Universal Rob Wells says music subscription services such as Spotify and Deezer had a breakthrough year in 2011.

"The last 12 months have been significant for the music industry, especially the digital portion of the music industry. We have significant growth in subscriptions - 67 percent growth year on year, up from eight million to now globally 13.7 million people paying for their music through subscription. The a la carte business is also growing so neither one of the two businesses are currently driving in each other's lane and I think for the next 12 months we're looking to significant growth from all services. iTunes will expand. Spotify will expand. Amazon will expand. Vevo will expand. It's all very optimistic."

In 2011, the IFPI estimated that 3.6 billion downloads were purchased globally, combining singles and album downloads, an increase of 17 percent.

The most popular digital single last year was Bruno Mars' "Just the Way You Are" whith 12.5 million downloads.

Industry executives interviewed by the IFPI said they saw growth potential in both main models of online music services -- "ownership" and "access" -- and improved technology and broadband penetration should also help. There were encouraging signs for the album format, too, with digital album volumes surging 24 percent in 2011 and defying predictions that the download age would spell the end of the LP as listeners cherry picked their favourite singles.

Edgar Berger is the president and CEO of Sony Music International business. "If you look at the biggest market, which is the U.S. it grew. If you look at the third biggest market which is Germany, it was stable for the first time since 15 years. Other markets like Sweden and Brazil growing. In the UK, Adele 21 was the most bought album in one calendar year ever. It shows that music sells. Single sales are up in the UK. There were more albums downloaded in the U.S. than bought physically and I think we're going to have a healthy retail space so that's all positive news. Absolutely, the music industry is about to turn a corner."

Overall the music market has shrunk every year since 2004, despite digital revenues rising.

In 2004, when digital sales first registered in IFPI statistics, the overall music industry was worth 24.3 billion USD, according to the latest adjusted figures. Other sectors, like publishing and movies, are concerned that the pain the recording industry has gone through for the best part of a decade awaits them in the future.

Digital sales accounted for 32 percent of global music revenues in 2011, compared with five percent for newspapers, four percent for books and just one percent for films.