A year end report from SoundScan found that digital music sales increased 45% in 2007, while physical album sales were down 15% from a year ago. Overall, U.S. music album sales dropped 9.5% in 2007 yet 23% of music sales were derived from digital purchases.

So who’s to blame? The music industry for not putting out great records? Music pirates for stealing money from artists and record labels? Consumers for just not buying enough music last year? Or maybe it’s a combination of these three.

Whatever the case, it can’t be denied that digital music sales are increasing every year. Consumers are getting more comfortable with digital music and that’s a trend that will continue. Overall, 50 million albums were downloaded in 2007, which is 53% more than 2006. The holiday season once again spurred a large number of sales. Online music company Emusic said that subscribers downloaded almost 500,000 tracks and audio books on Christmas Day alone.

Last year saw Radiohead release an online-only album (called “In Rainbows) for a “pay your own price”. And it was a big success for the band. Industry estimates were that there were 1.2 million digital downloads on first day of the album’s release. However, there are no official numbers on downloads or sales released by the band. In an interview in Wired magazine, band members said that Radiohead’s profits from “In Rainbow’s” digital downloads were more than all of the band’s other studio albums. Mostly that’s because Radiohead owned all the rights to their recordings with “In Rainbows”, unlike their previous albums that were split with the record labels.

In 2012, online music sales will grow to $2.8 billion, predicts Jupiter Research, making up 34% of U.S. consumer spending on music.

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