Recorded music sales are up for the first time since 1999, with the industry finally working out how to make money online.

For more than a decade, the music industry has been blaming piracy for eroding its profits, but now online sales and streaming services are responsible for the industry's growth.

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The latest figures were released by the International Federation of the Phonographic Industry in its annual Digital Music Report.

The organisation says revenue grew 0.3 per cent worldwide in 2012 to a total of around $US16.5 billion a year.

At the top of the global music chart was bubblegum pop singer Carly Rae Jepsen, whose track Call Me Maybe pushed 12.5 million sales.

That was followed by Australian artist Gotye's Somebody That I Used To Know, while Korean rapper Psy placed third with YouTube sensation Gangnam Style.

Download sales have increased about 10 per cent and subscription services like Spotify grew more than 40 per cent last year.

Globally, physical musical sales - things like CDs and records - still account for just under 60 per cent of the market, but it is falling.

Digital innovation

Dan Rosen, chief executive of the Australian Recording Industry Association (ARIA), represents both big and small music labels, and says growth is coming from online.

"I think there's been an enormous amount of work spent on innovation and new business models to make sure that we can embrace the digital environment and get people music in the formats they want," he said.

The music industry is also working out that using the internet to engage with fans can also be lucrative.

Look no further than boy band One Direction, which got two listings in the global top-selling albums last year.

The band has millions of Twitter followers and more than 20 million people either view its videos on YouTube or look at the band's website every day.

But Mr Rosen says despite the growth in sales, the problem of piracy still exists.

"The tone of this report is very much positive around what's going on and the music industry has done an enormous amount to make it easier for people to do the right thing," he said.

"We want to continue our work with governments and ISPs (internet service providers) to make it a little harder to do the wrong thing."

Stopping piracy

The music industry has long pushed for legislative restrictions on the way music is accessed online.

It wants search engines like Google to stop displaying links to websites that may offer licensed music available for free and instead show links to industry-approved sources.

Luke Hopewell, editor of Gizmodo.com.au, says the industry is heavily lobbying governments as well.

"I do think the music industry has the ear of government quite heavily in terms of what can and can't be blocked, through lobbying services and things like that," he said.

"But restricting the internet and blocking certain sites like we saw with the SOPA and PIPA bills last year really is a risk to the free and open internet.

"The internet was created for a free and open exchange of information, but that also includes information that some people might not want shared - like, for example, how to steal music.

"It should be common knowledge that you shouldn't steal music and there are ways to do it and listen to music that are a lot cheaper these days."