The latest recording industry statistics show digital music sales are rapidly increasing as a percentage of total industry sales, but not by enough to offset a dramatic fall in compact disc sales.

In 2007, digital music sales accounted for just under one quarter of total recording industry revenue, up from 9 percent in 2005, according to recently released data from the Recording Industry Association of America, the industry's trade group.

But total industry revenue, including both physical and digital sales, fell 11.8 percent, to $10.4 billion, in 2007 from a year earlier. Since the industry peaked in 1999, more than $4 billion in revenue — almost 29 percent — has vanished.

"The fact that digital sales have a greater percentage of the pie does not make up for the fact that the pie is shrinking," said Bob Lefsetz, an industry analyst who writes the widely read Lefsetz Letter. "Digital sales are not an adequate replacement for lost physical sales."

The bleak numbers underscore the existential challenges facing the recording industry as it tries to come up with a new business model suited to the digital age. Major artists such as Radiohead and Nine Inch Nails are increasingly forsaking traditional distribution lines, cutting out the major labels, and offering their music directly to fans online.

In a further sign of the recording industry's grinding transformation, Lars Ulrich, drummer for Metallica, the legendary metal band that once led the charge against illegal file-sharing, recently suggested to Rolling Stone that his band could follow Radiohead's lead.

Meanwhile, the major labels are considering a variety of new business models, including a highly controversial monthly music fee bundled into consumers' internet service bills.

The new industry numbers vividly illustrate the severity of the crisis facing the traditional record business.

Last year, compact disc sales fell more than 20 percent by value from 2006, to $7.5 billion — down from a peak of $13.5 billion in 2000. Analog cassette sales have plummeted from $1.5 billion in 1997 to a paltry $3 million — yes, $3 million — in 2007. (As recently as 2003, annual cassette sales exceeded $100 million.)

One bright spot for the industry is that sales of old-fashioned vinyl LP's and EP's rose by 46 percent last year. But with sales totaling a mere $23 million, they accounted for a minuscule share of total industry revenue.

Digital music sales, meanwhile, continue to explode, rising 43 percent by value from 2006 to $1.25 billion — and up from $183 million in 2004.

Mobile music sales, including ringtones, ringbacks, and music videos, reached $880 million in 2007, a more than 100 percent increase from $420 million in 2005, the first year the R.I.A.A. started tracking mobile sales.

Digital music subscription sales appear to have stalled, however. After jumping nearly 40 percent from 2005 to 2006 to reach $200 million, digital subscription sales decreased last year by 2.6 percent.

by Sam Gustin