While digital music revenue has grown 1,000% over the past seven years, the entire music industry has lost a third of its value over that same time period. And while digital music seems to represent both the best hopes and the worst fears of the industry, even its growth is slowing - only 6% last year, down from 9.2% growth in 2009. Digital sales comprise about a third of the industry's total revenue.

"While record companies are innovating and licensing every viable form of music access for consumers," says IFPI chief executive Frances Moore, "the music industry is still haemorrhaging revenue as a result of digital piracy."

Moore labels this "a crisis affecting not just an industry - but artists, musicians, jobs, consumers, and the wider creative sector."

This sort of rhetoric - "crisis," "haemorrhage," "the need for rule of law on the Internet" - isn't new for the music industry. But the report does say that in 2010 governments, at the industry's urging, seemed more willing to take action to crack down on music piracy. The report points to the closure of the file-sharing site Limewire and blockage of Pirate Bay in Italy and Denmark as positive efforts.

Will Subscription Services Save the Industry?

The report also pins its hopes on the growth of subscription services, arguing that the rise of these alternatives has been driven by consumer demand for digital music. The report says that 2010 "broke the seal" on subscription services, as these became more widely available - on more devices, in more locations. But as the report notes, licensing issues remain a challenge.

Those licensing issues have been an obstacle to companies seeking to offer legitimate subscription services. Most notably, Spotify has had to delay its launch in the U.S. because of difficulties striking deals with the major music labels.

But it's piracy, not licensing, that the IFPI cites as the major obstacle to a thriving music industry, citing job losses and "victimized" developing artists. Addressing this, according to the report, is the government's responsibility, and it argues that as such it can "turn the tide against piracy in 2011."

According to analyst firm Forrester's latest report, 2009 was "a lousy end to an even lousier decade" for the music industry and we shouldn't expect much different until at least 2013. Last year, as a matter of fact, was one of the worst years yet, with a 13% decline from the year before.

Of course the economy can't be helping these numbers, but Forrester sees this as a trend that is going to continue until it gradually starts to even out in 2013. By 2014, the company predicts music industry revenue to level off at around $5.5 billion with digital sales taking up most, but not all, of the slack.

The report also has one interesting event to note for 2012 and, no, it isn't the destruction of the world at the hands of a Mayan death clock - digital music sales will finally surpass sales of physical media like CDs and vinyl.

While it goes on to say that 2010 will be a better year than 2009 for the growth rate of spending on digital music, the overall numbers will likely trend downwards after that, as shown in the graph above.

At about $160 a year, Datz' plan is comparable to most subscription services, though the high upfront cost and limited selection might make quite a few potential subscribers think twice about the value of this new service.

Mark Mulligan from Jupiter Research argues that Datz is a big deal - not because it might become a market leader itself, but because it has laid a licensing groundwork for the rest of the industry.

Indeed, it will be interesting to see if other services will offer similar all-you-can-eat plans in the future and if the music industry as a whole will be willing to go along with this.

At the end of the day, it is good to see yet another new business model for music services and that at least some of the labels are willing to experiment with new licensing models as well.

Perhaps the greatest challenges to companies like MySpace Music and Facebook may not be from the big players, but startups that offer artists greater control over their work and pricing flexibility.

This is fair picture. Forecasts generally call for moderate growth in online advertising through 2009. eMarketer expects the market to increase 14.5 percent in 2009.

Even with this outlook, digital music companies face challenges above and beyond what lies ahead with the economy.

MySpace Music is definitely the big player, but criticism about the service ranges from a poor UI to how they treat indie labels. Add to that a potential competitor like Facebook and the issues intensify. Brooks took repeated questions about why they gave the major labels preferential treatment. Brooks said that MySpace Music will phase in new services to provide the indies more of a presence. That reality materialized today. Digital music distributor IODA has signed on to make its catalog available on MySpace Music.

But perhaps the greatest challenges to companies like MySpace Music and Facebook may not be from the big players, but startups that offer artists greater control over their work and pricing flexibility.

Rise of the Band Blogs?

Of the startups that presented at the conference. Bandcamp received some of the highest acclaim. BandCamp is a blog platform designed for musicians. The platform is similar to Blogger or Wordpress but with limited flexibility. The service is free. Sites are designed for search engine optimization. The site has a Flash player but everything around it is HTML. BandCamp includes an analytics platform that details page views, music sales and what tracks musicians played. The service integrates with Paypal. Tracks may be offered for free.

Artists determine the price for their music. The artist uploads their tracks as .AIF or .WAV files. BandCamp converts the file and then offers the artist a selection of different formats for their play list. Artists may choose to sell the music as an mp3, for instance, at a high or low bit rate, setting the price accordingly. There even appears to be the ability to do variable pricing, something the majors have wanted to do for quite some time. BandCamp takes no cut from the sale. Musicians host their own sites.

For BandCamp Founder Ethan Diamond, the service is about giving artists control. He likes to call themselves the "very nerdy" fifth Beatle who takes care of all the geeky stuff so the band may do what they do best.

In his presentation, Diamond sharply criticized the practices of companies that do not provide artists with complete ownership of their works. Diamond has said before that Imeem and MySpace Music both fit into this camp. The companies that engage in this practice he called "online sharecroppers."

Already The Dynamics Are Changing

Steve Jang, vice president of marketing and business development at imeem, sat on the panel with Brooks and Batt. He seemed pretty quiet compared to his colleagues.

He must have had a lot on his mind, listening to his counterparts talk about the business. As we reported this week, Imeem is up for sale. They've laid off 25 percent of their staff. Warner Bros, as you may recall, sued Imeem earlier this year. They later dropped the suit in exchange for an equity stake in the company.

And so, who will purchase Imeem? Is this a play for Facebook?

Oh, these times are a changin'. :-)

I'm covering the event for ReadWriteWeb, primarily looking at the overall impacts that policy developments and the economy are having on the music industry. But also how these forces may affect the underpinning structure of the industry and the artists who create the music. I'll be shooting video, too, interviewing speakers and conference participants. To kick off our coverage, here are five important online music biz people we plan to track down at the conference...

This startup depends on advertising revenue. With the recession underway, the revenue picture is unclear. Tim is here to discuss policy issues, one he is quite familiar with. Westergren became the defacto spokesperson in the long running battle in Congress over webcasting royalty rates.

Discussion point: What's the next hurdle for Pandora in the public policy debate about webcasting rates?

Josh Brooks, vice president of MySpace Music. The jury is out on the MySpace venture with the big labels. Last week, MySpace Music scrapped its equity deal with the labels. The labels had hoped for a big payday with that equity stake. They're now looking at an advertising share, which is a big question mark considering how much the market appears to be slowing. Josh is being pretty mum about how thing are going at MySpace Music.

Discussion point: Some have criticized that independent labels are being treated as second tier citizens by MySpace Music. Additionally, there had been some expectation that the indie artists would receive an equity stake much like the big labels were going to receive. What now?

Derek Slater, Google: Derek works in public policy at Google. Slater is formerly with the Berkman Center.

Discussion point: Google's public policy strategies and how it relates to the new platforms in development by music technology companies.

Gary Greenstein, Wilson Sonsini: Greenstein is a former attorney with the RIAA. He played a major role in establishing webcast rates when he worked with Sound Exchange.

Discussion point: How does Greenstein see licensing models changing and what are his views on the RIAA position concerning "making available."

Ethan Kaplan, Warner Bros Records: Ethan began his career in the music industry developing a fan web site for REM. The band hired Ethan to develop its web presence. Ethan is now vice president of technology at Warner Bros. Ethan is a huge advocate for open source. He has created a Drupal network for artists on the Warner labels.

Discussion point: What is the state of open source development in the music industry?

We have a few more people we plan to talk with here at the conference. We'll be back this afternoon. In the meantime, leave us your comments and perhaps questions for the 5 people listed above.