Music subscription services including Spotify and Deezer have broken through the US$1 billion annual sales barrier as more fans reject piracy in favour of paying for music online.
Streaming and subscription revenues rose more than 50 per cent last year to reach US$1.1 billion, helping overall sales of recorded music in Europe grow for the first time in 12 years.
There are now an estimated 450 music rental services around the world, and while many people still listen illegally for free, a desire for more choice is persuading more music lovers to part with their cash.
In the past three years the number of paying subscribers rose from eight million to 28 million, according to the 2014 digital music report from the International Federation of the Phonographic Industry.
Easily accessible from smartphones and tablets, subscription services are popular with people looking to try out new music without committing to buying a download or a physical CD. Consumers say they are attracted by a cheap, user-friendly and legal alternative to pirated downloads.
"It is now clear that music streaming and subscription is a mainstream model for our business," federation chief executive Frances Moore said.
The federation also said One Direction were the biggest selling artists last year, with four million physical and digital sales for their Midnight Memories album. Katy Perry's Prism was the best-selling album by a female artist, in sixth place behind Eminem, Justin Timberlake, Bruno Mars and Daft Punk.
Consumer technology companies have been racing to join the music streaming trend, with Apple launching iTunes Radio and Google promoting its Play store.
"The advent of the smartphone as a music listening device has been profound for the music business," said Ole Obermann, executive vice-president at Sony Music Entertainment.
"With 30 per cent plus of the world's population projected to own a smartphone by 2016, that equates to over two billion potential music service customers worldwide."
There are signs that in Britain and America streaming may soon generate more revenue for the music industry than downloads from online stores such as Apple's iTunes. Subscription services now account for a third of all digital sales globally, with downloads making up the balance, but the federation data shows that the two formats are growing at different rates.
In the US, the number of people claiming to use subscription and streaming rose from 19 per cent in 2012 to 23 last year, while the number downloading fell from 28 per cent to 27 per cent. In Britain, downloaders remained static at exactly one third, while subscribers grew from 19 per cent to 22 per cent. In Sweden, France and Italy, streaming is already more popular than downloading.
Digital formats now account for 39 per cent of all music sales, or nearly US$5.3 billion out of US$13.5 billion, and while sales of physical CDs and vinyl declined steeply in 2013, they still contribute just over half the industry's income. A recent crash in music sales in Japan, which accounts for one fifth of music industry sales, meant sales across all formats globally fell 3.9 per cent.
So-called physical format sales account for 51.4 per cent of all industry revenues but this is falling, down from 56 per cent in 2012.
But vinyl continues to make a comeback. Sales increased 32 per cent in America and 101 per cent in the UK last year.
Additional reporting by Agence France-Presse