Piracy and competition for consumers lead to a 4% drop in global music sales, the industry has said.
The global digital market has more than doubled since last year
The International Federation of the Phonographic Industry (IFPI) said total music sales in the first half of 2006 fell to $13.7bn (£7.4bn).
But digital sales rose by 106% to $945m (£510m), representing 11% of the worldwide recorded music market.
The sale of physical formats such as CDs fell by 10% under pressure from cheap illegal copies.
The 4% decline exceeds the 3% fall recorded for the whole of 2005, but a spokesman for the IFPI said the second half of the year tended to be stronger due to Christmas sales.
He added the digital market had fought illegal downloading by aggressively targeting file-trading and offering legal alternatives such as Apple's iTunes music store.
The British Phonographic Industry (BPI) said that while it did not have exact figures to compare, both album and single sales had shown a slight rise in 2006 from last year.
The global figures cover wide national variations with those countries seeing a rise, such as Japan (12%), South Korea (5%) and Australia (6%), balanced by many seeing a fall, including Germany (-4%), the US (-7%) and France (-9%).
The British digital market is estimated at 8% of the total market, compared to the likes of South Korea (51%), Japan (11%), Italy (9%).