NEARLY $4 billion (€3.65 billion) worth of music will be sold over the Internet, or other digital distribution systems, in five years time, according to a new study by Music Business International (MBI), the research consultancy.

The development of the online market is one of the most important issues facing the global music industry. It threatens to destabilise the balance of power by triggering a steep increase in piracy and enabling both record companies and recording artists to bypass traditional retailers.

The online market is still in a fledgling state. MBI's new World Report 1999, compiled from data supplied by Market Tracking International, estimates that nearly $143 million-worth of music was sold on the Internet last year. Almost all those purchases were conventional compact discs or cassettes bought by mail order from retail websites such as CD Now and Amazon. The online market was also heavily dominated by the US which accounted for $126 million-worth of total Internet sales, compared with just over $13 million from Europe, the second-largest region.

Internet sales are expected to rise rapidly over the next few years, as computer usage increases and record companies introduce direct digital delivery systems, whereby consumers can download digital versions of recordings directly on to their home computers from websites. The "big five" multinational music groups - Universal, Sony, Warner, EMI and Bertelsmann - are starting a digital distribution test with IBM in San Diego, California, this summer, and plan to launch similar systems nationally this autumn.

MTI's data suggest that Internet sales will more than double in value to $346 million this year and total $3.9 billion in 2004. The US contribution to the online music market will be worth $2.8 billion that year, and Europe's $834 million.

The vigorous development of the Internet music market will take place against a backdrop of relatively modest growth in total music sales and corporate turmoil across the industry as Universal absorbs the old Polygram group and EMI continues to be clouded by takeover speculation.

MBI suspects that the depressed Asian region will remain sluggish for several years, as could the once-buoyant Brazil. Other Latin American markets may accelerate and the North American market is expected to remain solid.

As a result, the global music market is expected to grow from $40 billion in 1998 to $41 billion this year and to $47.5 billion in 2004.