The Internet has been a blessing for the music industry. Although the RIAA and IFPI frequently complain about piracy, their own research shows that only 10% of all illegal downloads are considered to be a loss in sales. Meanwhile, piracy has shown them how to monetize music online, and turn it into profit.

Every year, RIAA’s global partner IFPI publishes a digital music report, which can be best described as a one sided view of the state of digital music consumption. For several years in a row the report has shown that the sales figures of digital music have gone up, but still, the industry continues to blame piracy for a loss in overall revenue.

One of the key statistics that is hyped every year, is the piracy ratio of downloaded music. Just as last year, IFPI estimates that 95% of all downloads are illegal, without giving a proper source for this figure. Interestingly, those who take a closer look at the full report (pdf), will see that only 10% of the claimed illegal downloads are seen as a loss in sales.

Contrary to the RIAA’s arguments in court, the BPI and IFPI don’t believe in the “every pirated download is a lost sale” myth. Matt Phillips, BPI’s Director of Communications wrote in an email to TorrentFreak: “No, we don’t think every illegal download is a lost sale (and never, ever, have, if my memory serves me correctly). The estimates for lost sales revenue is [sic] not calculated on this basis.”

To come up with a ‘best guess’ of the real losses for the UK market, the music industry have commissioned Jupiter Research. For two years in a row, Jupiter estimated the losses are to be about equal to the revenue that comes from digital sales. If we combine this with the ‘only one in 20 downloads is paid for’ guesstimate, only one in 10 illegal downloads is seen as a loss in sales.

Of course we will be very reluctant to draw conclusions from research that is commissioned by the music industry itself, however, it would interesting to know what the effect is of those downloads that are not seen as a loss. Could they perhaps used by consumers to discover new music, and generate revenue in the long run?

What is clear from the report is that ‘pirates’ have shown the music industry what consumers really want. The music industry is slowly starting to recognize that they have to compete with piracy, by offering high quality products. In the 2009 report, for example, IFPI proudly reports that many services now sell DRM-free music, while they themselves are the reason why these restrictions were implemented in the first place.

In the report IFPI writes: “An important development in 2008 was the licensing of more online stores to sell downloads without digital rights management (DRM), meaning consumers can play the music they acquire on any portable device. In January 2009, Apple announced it had signed deals with leading record companies to offer eight million DRMfree tracks at flexible price points. The move is expected to significantly boost download sales.”

Besides the usual anti-piracy ramblings on how ISPs should help to disconnect pirates from the Internet, the report documents another interesting trend. The music industry clearly recognizes that they’ve done something wrong in the past, and is now promoting unlimited download services, either ad supported or for a low monthly fee. If done right, this ‘piracy inspired’ model might just be the future of music consumption, or at least a worthy competitor to piracy. But then again, they will find something else to complain about sooner or later.