The report from Jupiter Research finds that while spending on digital music will grow from about $1 billion in 2006 to $3.4 billion by 2012, it will not compensate for shriveling CD sales, which still reached almost $10 billion in 2006.

“It’s tough making money, except if you’re making iPods,” said David Card, vice president and research director at Jupiter Research. “Then you’re making a lot of money.” That means artists and their music companies will have to scramble to come up with fresh revenue streams.

“The key message is that if you’re in the music business, particularly the record business, you have to be in different businesses,” he said, noting that potential new revenue could come from licensing music to advertisements, TV shows, and video games.

Contrary to popular belief, touring is only marginally profitable for many acts, he said.

“A lot of casual observers would say recording music is just an ad for touring,” Mr. Card said. “Madonna and others make a lot of money out of touring, but most other bands don’t.”

The report cites record-industry statistics showing that U.S. CD sales were down 13 percent in 2006 and a further 19 percent in the first six months of 2007.

That decline was triggered in part by the emergence of digital music and web sites like Napster, founded in 1999, which let users download music tracks for free.

“The fact of the matter is that the music industry peaked in 1999 in selling CDs,” Mr. Card said. “It has been downhill ever since.”

The trends are reflected in a decline in revenue by British record label EMI, whose stable includes Norah Jones, Ludacris, and Keith Urban. In fiscal 2007, revenue fell to $3.6 billion from $4.3 billion the prior year.  One of those new revenue streams could come from music distribution supported by advertising. For instance, Adweek reports that social-networking site MySpace plans to put out an advertising-supported music distribution channel beginning with release of a new album from punk rockers Pennywise.