Jupiter Research predicts digital music services will halt the decline in European recorded music sales by 2010.
The research firm believes that next-generation digital music services will unlock future music industry revenues and will drive mass market adoption of digital music services.
Jupiter's report notes that currently European digital music services are neither successfully competing with illegal downloading nor replacing lost CD revenues: digital sales generated the equivalent of just 32 percent of cumulative music revenue decline since 2004.
European music peer-to-peer sharing is twice as widespread as digital music buying: 18 percent compared to 8 percent.
Jupiter believes that ensuring services aren't restricted to any platform (device or operating systems) and the blurring of the distinction between mobile- and computer-based music services will be critical for the industry to regain lost ground.
The analyst said the music industry needs to implement three distinct layers of digital services, including ad-supported downloads, subscription services and DRM-free downloads in order to drive digital music to revenues of €2bn by 2012.
"Though music industry revenues are continuing to decline apace, music consumption is at least as strong as it ever was, with more choice and platforms for consumers than ever before" said Mark Mulligan, vice president at JupiterResearch and lead author of the report.