By Caroline Briggs
BBC News entertainment reporter
The number of people illegally sharing music on the internet has remained steady - despite the success of legal download services, say analysts.
Eminem has been a previous target of music pirates
The Informa Media Group said the value of lost sales remained almost unchanged from last year at $2.1bn (£1.1bn).
Simon Dyson, author of the report, told BBC News 2004 had been an "important" year for the digital music sector.
But he warned that converting illegal peer-to-peer file sharers was central to the industry's long-term success.
He added that legal action being taken by record companies against illegal downloaders had so far failed to make an impact.
Mr Dyson said the main perpetrators were likely to be teenagers and people in their early to mid-20s.
He said: "The research found that the number of people using peer-to-peer services had not really decreased since the last report 12 months ago.
"Many millions of music fans still prefer to download for free even though the legal services offer such good value.
"People's awareness that it's against the law has increased and I think parents are more informed about what their kids are doing because of all the legal actions.
"But while some people would have been scared off by the legal actions, others will be all the more determined to do it."
Mr Dyson said record companies were increasingly looking at ways to work with the illegal peer-to-peer websites to try and tackle the problem.
"I think they [record companies] have realised they are not going to win the battle completely," he said.
The emergence of Apple iTunes in June this year "kick started" the whole digital music industry in many countries around the world, Mr Dyson explained.
And he added that successful launches of iTunes and other downloading services, such as Napster and Mycokemusic.com, were even more impressive given that every music release is available for free somewhere on the internet.
The report also found that the dominance of CDs on the market place would be overtaken by internet downloads in 2010 when sales will top $6bn (£3.15bn).
The share of music sales online will rise from 4.6% in 2004 to 15.2% six years later, it is predicted.