Record companies made more than $1.1bn (£620m) in sales through digital music last year, as people turned to their mobile phones and the internet for new tunes.
The sale of music tracks tripled from 2004, when record companies made $380m from digital tracks, according to the IFPI Digital Music Report.
For the first time, legal downloading of music is outstripping illegal file-sharing, with 6 per cent of internet users in Britain and Germany using Apple's iTunes and other download retailers, as opposed to 5 per cent sharing tunes illegally.
John Kennedy, the chairman and chief executive of the IFPI, which represents the recording industry, said: "A new wave of digital commerce, from mobile to broadband, is rolling out across the world. It is generating billions of dollars in revenues and it is being driven, to a large extent, by music - by the people who create music, who produce it and who invest in it." In the UK, digital music sales were up 357 per cent, from 5.8 million tracks in 2004 to 26.4 million in 2005, according to Charts Company figures.
Simon Wright, the chief executive of the Virgin Entertainment Group International and president of the Global Entertainment Retail Association, said: "2005 has taught entertainment retailers about diversification. The sale of traditional music formats alone can no longer be relied upon to maintain entertainment retail as a viable business model. The sale of traditional product coupled with the sale of digital product and music-related goods will be the model moving forward."
The week between Christmas and the new year, after MP3 players had been unwrapped as presents, saw a record 20 million tunes downloaded worldwide, according to Nielsen SoundScan. This is three times the number downloaded at the same time in 2004.
Across the globe, music fans downloaded 420 million tracks from the internet last year - 20 times more than two years earlier and more than double the number of tunes downloaded last year. The volume of music licensed by record companies doubled to more than 2 million songs.
Digital music now accounts for more than 6 per cent of record companies' revenues. Two years ago, the amount was negligible.