The music industry will continue its decline into the next decade, according to a report released on Tuesday, but digital downloads of music will pass CD sales by 2012.

Digital music sales have grown steadily over the last five years and that rate of growth will climb to 23 percent over the next five years, reaching $4.8 billion by 2012, according to the Forrester Research report

CD sales, once the engine that drove the entire industry, will dwindle to just $3.8 billion by 2012.

The CD sales predictions spell out the end of the music industry as it's currently constituted, according to James McQuivey, the author of the report, but the remaking of the industry will be driven by the very digital technology that caused its collapse.

According to the report, which is based on a survey of more than 5,000 customers in the United States and Canada, digital downloads are "the logistical mass market for the future ... easy to find, easy to buy, and easy to listen to regardless of the device."

The fact that all of the major labels are now committed to removing digital rights management (DRM) usage restrictions from downloaded tracks will help shape the economics of the re-emergent music industry.

DRM-free music will usher in social networks such as Facebook and MySpace as music marketplaces where friends sell friends their favorite songs.

With music tracks freed from usage restrictions, MP3 players, which the report said are now underutilized because of DRM, will play a much more central role than they do today, according to the report.

But not all of the new digital outlets will thrive. Ad-supported music firms such as SpiralFrog will be quieted by the disappearance of DRM, the report said.  Music streaming sites such as Imeem.com will prosper. And subscription services will show only modest growth, reaching just $459 million in revenue in 2012, according to the report.