Youtube has banned music videos to UK users. Free downloading sites such as Spiral Frog and Ruckus are being forced to close down due to collapse in advertising revenue. With only free listening sites such as Spotify surviving, CDs and legal download sales are finally on the increase.

In the 16 weeks ended the 25 April 2009, HMV UK & Ireland announced an 11.7% increase in total sales with like-for-like growth up 4.3%, compared with a smaller 6.3% increase in total sales and 1.9% like-for-like growth in the 52 weeks leading up to 25 April 2009.

Chief Executive Simon Fox said: "This [increase in sales] has been driven by initiatives to transform the business and by maximising the opportunities arising from competitors exiting the market."

Sean Boyd, partner of Fanatic Promotion, an organisation which builds fan-to-fan connections between musical artists and the media, explained this recent increase in the number music sales, but decrease in revenue, in a recent Fox Business News interview on 25 March.

He said that revenue has decreased in the USA by 11.8%, but the amount of sales have gone up by 11.6%.

Mr. Boyd said: "We are now paying less for music, with iTunes selling songs for 99 cents a song and ACDC selling for $8.99 in Wal-mart, but we are buying more."

Music listening site Spotify, which offers users free music listening interlaced with adverts to pay their costs, sells tracks through their online music store 7Digital for as little as 50p, compared with iTunes cheapest track at 59p.

Spotify has more than one million users, with at least 250,000 in the UK, and sells more than six million songs.

According to InProdicon, a Swedish digital content provider that provides over half of the music tracks downloaded through several online and mobile services, legal digital music purchases have increased 100% since the 1st April passage of IPRED, a controversial new law that allows copyright holders to seek a court order requiring ISPs to divulge the names of accused file-sharers.

Managing director Klas Brännström said: “We have seen a clear sales increase compared to last year. There has been a 20-30%increase on an annual basis, but sales fluctuate a bit depending on which artists are launching new albums.”

Aaron Child of Banquet Records, Kingston, said that their success in the current economic climate with many record shops going bust, is due to being available to offer more than just CDs.

Mr. Child said: "Local record shops need to be able to push things forward and diversify from just selling CDs. At Banquet Records, we sell gig tickets, headphones, vinyl, t-shirts, events - today you need to be more than just a record shop."

YouTube announced on 9th March that it will block all music videos to UK users after it was unable to reach a rights deal with the Performing Rights Society, who collect money from copyright holders and distribute funds to the rights owners, such as artists and record labels. Just a few weeks later, YouTube Germany also announced a similar ban on the 31st March. German Performance Rights Organisation GEMA wanted YouTube to pay 1 cent per song played, which they could not afford.

Google's Kay Obereck called GEMA's demand "completely unacceptable" as YouTube would be making a loss with every video played.

A study by the BI Norwegian School of Management said that people who illegally download songs also buy ten times more music than those who do not use file sharing networks to download illegally, according to the Oslo paper Aftenposten.

Free downloading sites who promote song sharing at the expense of the record labels, publishers and artists have claimed all those downloads will pay off in the end, as downloaders only "sample" music which they will later buy.

These sites therefore appear to be more like a form of advertising for new music, as radio becomes less popular. Online streaming, inexpensive downloads from Amazon Mp3 and iTunes, social networking sites and P2P file sharing all serve as a promotional outlet for artists. 

Similarly, a Canadian study The impact of music downloads and P2P File-Sharing on the Purchase of Music: A Study for Industry Canada found that there was "a strong positive relationship between P2P file-sharing and CD purchasing" among P2P file-sharers. For every 12 P2P downloaded songs, music purchases by P2P downloaders increased by 0.44 CDs.

Aaron Child of Banquet Records, agrees with this relationship as encouraging for the music industry.

Mr. Child said: "There are lots of young people who download music illegally to try out new styles that they haven't heard before, and then come into our shop to buy the physical CD. I think downloading, illegal or legal, is a good thing for music as it introduces people to new music but the CD remains a personal thing that people want to have."

However Geoff Taylor, chief executive for BPI, the governing body for the UK Record Industry, is not so optimistic and that illegal downloading is hindering the progress of legal music services.

In a speech on the role of record labels in the digital age last year, Mr. Taylor said: "The mass availability of free music on P2P networks and from other illegal sources strangles the prospects for new music services that do want to fairly reward creators, and stops them reaching the penetration, or realising the value, that they ought to attain."

Within the legal music market, Mr. Taylor said that CDs have definitely not lost their value in this digitalised era, and that the album market is still bigger than it was in the late 1990s.

He said; "Research published by our friends at BMR shows that music lovers still place great value on the CD – the majority of people said that they would continue to buy CDs even if they used a legal sharing or streaming service." 

Youtube's move to ban music videos in the UK and many free downloading sites having to close down due to lack of funds may be responsible for the recent increase in the number of music sales. However, it is more likely that the lower price of music, especially within digital formats which services such as Spotify offer, has helped the industry. Contrary to what many music companies and governments believe, free downloading may in fact help to sell CDs and paid-for online tracks through its ability to market new music to listeners with diverse tastes.