The International Federation of the Phonographic Industry said digital sales increased by 6 percent in 2010 – only half the growth rate registered in 2009 and far from the explosive expansion seen in earlier years. The IFPI values the market in legal digital music at $4.6 billion, but says the trade in unauthorized content remains far, far more important.

“As an industry we remain very challenged,” IFPI chief executive Frances Moore told journalists ahead of the report’s publication. “Something like 95 percent of downloads are still unlicensed.”

The IFPI is a dogged opponent of illegal file-swapping, which it claims is ravaging the world music business. Its annual reports have charted its campaign to crack down on pirates – as well as the growth of the industry’s digital offerings, which now account for nearly a third of the industry’s flagging revenues.

Results last year were mixed.

The IFPI counted some qualified successes: Britain followed the lead of countries such as France and South Korea by enacting a law that could eventually lead to persistent illegal file-sharers having their Internet access limited or suspended outright. China, one of the music industry’s biggest problem areas (music piracy rates there are estimated at virtually 100 percent) said it was working to tackle the issue.

There was some good news for the IFPI on the legal front as well. In October a U.S. District Court issued an injunction preventing Limewire – which the IFPI accuses of being the country’s biggest source of illegal music downloads – to stop supplying its software. The next month, Sweden’s Court of Appeal upheld the convictions of three men operating The Pirate Bay, one of the Web’s most notorious file-sharing sites.

But all that has failed to quash illegal file-sharing, which the IFPI blames for taking 31 percent of its revenue in the past six years. Its report cited figures showing a 17 percent drop in the number of people employed as musicians in the United States as just one of the many illustrations of Internet piracy’s reach.

The IFPI renewed its appeals to governments and Internet providers worldwide to help put a lid on the problem. And while providers have traditionally resisted such calls, the report highlighted one development which may help bring them over to the other side.

Increasingly, they’re the ones supplying the music.

The IFPI singled out Nordic countries, where Swedish and Finnish provider Telia offers a four month free subscription to streaming music Spotify Ltd. and Denmark’s TDC offers unlimited music downloads to its mobile and broadband customers. Italy’s FASTWEB and Ireland’s Eircom have also recently begun offering subscribers similar access to millions of songs.

Moore described the music industry’s emerging partnerships with providers as a win-win situation, with those who supply the Web access getting a new source of revenue, and those who supply the music getting a new ally in its campaign to get consumers “to be responsible in their use of the Internet.”

The IFPI did not provide estimates for how much such arrangements could win for the music industry, but it said that, in the U.K. alone, partnerships like the one in Sweden could earn Internet service providers more than 100 million pounds ($160 million) annually by 2013.