The recording industry is making more money from fan-made mashups, lip-syncs and tributes on YouTube than from official music videos.

“It’s a massive growth area. We’re very excited about the creativity of consumers using our repertoire and creating their own versions of our videos,” said Francis Keeling, the global head of digital business for Universal Music Group.

With one billion users worldwide, YouTube is the most used music service in the world, according to the annual Digital Music Report released Tuesday by IFPI, an organization that represents 1,300 record companies around the world.

“All record companies make their repertoire available to YouTube,” Keeling explained.

The video website, owned by Google, tracks uploaded videos and alerts record companies when a YouTube user uploads content that uses a copyrighted song.

Rather than order the video removed for copyright infringement, the record company can instead choose to run ads before and during the video, making money off the video’s views.

For example, a video of American comedian Steve Kardynal wearing a bikini and lip-synching Carly Rae Jepsen’s “Call Me Maybe” for unsuspecting viewers on Chatroulette racked up more than 14 million views, which earned ad dollars for the record label behind Jepsen’s hit single.

User-generated content, which includes mashups and fan-made music videos, are actually generating more money for record labels than the official music videos posted by record labels, Keeling said.

“A lot of that is due to consumers putting more and more repertoire and new versions up there, but also it’s YouTube getting better at advertising,” he said.

New advertising formats and an expansion of ads to more than 50 countries have increased the amount of money generated by ads on the video sharing site.

YouTube is expected to roll out a premium subscription service in 2014, providing another source of revenue, the IFPI report says.

That’s good news for the music industry, which saw a global decline in revenues of 3.9 per cent to about $15 billion (U.S.).

Streaming services such as YouTube are one of the key changes in the way the world is listening to music.

Online subscription services such as Rdio, Spotify and Deezer generated more than $1 billion in revenue in 2013, growing more than 50 per cent worldwide since last year.

Money generated by advertising-supported streaming services such as YouTube and Vevo grew 17 per cent.

Streaming services are helping to encourage more listeners to pay for music instead of pirate it. In 2013, 28 million people paid for subscription services, a dramatic increase from only eight million in 2010.

While music downloads through services like iTunes still make up two-thirds of the industry’s total digital revenues, they actually declined slightly in 2013.

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Old-fashioned CDs and records aren’t dead just yet. Though global revenues from physical music sales declined last year, they still make up half of total revenues.

And in some countries, such as the U.S. and the U.K., sales of vinyl actually increased by as much as 100 per cent.