The international music industry association, the IFPI, has revealed the 2006 figures for global music sales.
Worldwide CD sales were down again, continuing a seven year downward trend, but the slump in the figures was more than the industry has been expecting.
Total CD sales were $19.6bn (£9.73bn) down 5% from $20.7bn in 2005.
"We hoped that the decline in physical sales would be offset by the increase in digital sales", said the IFPI chairman, John Kennedy.
"But while digital sales have grown as expected, physical sales have fallen by more than expected.Unfortunately this trend has continued in 2007."
"Physical sales continue to drop at a faster pace than we have hoped for, particularly in the US and now also in the UK - a market that had shown incredible resilience."
Music downloads via both computers and mobile phones were up 85% to $2.1bn in 2006 and accounted for 11% of worldwide sales.
Digital sales could increase by another 50% in 2007, but the IFPI said the biggest problem facing the music industry was still piracy.
The IFPI said some 20 billion illegal music files were downloaded in 2006.