The music business needs to adopt new business models that embrace digital music distribution, rather than engage in costly legal action, a research firm claims.

In its report, 'Thinking outside the disc', analyst firm Parks Associates suggests the music industry has "so far failed to adapt" to the digital age. The analysts argue that the businesses fight digital piracy by creating a free music-on-demand service that relies on advertising for its income stream.

Research analyst John Barrett said: "Digital music has changed the market, and business models need to change too or the industry will suffer the consequences.

"Even if file-swapping networks were to magically disappear, the traditional revenue models would still be under strain," he warns.

Barrett argues that the recording industry has always been able to sell the same musical works multiple times to the same consumer simply by repackaging it. "Digital music allows consumers to repackage music themselves," he warns.

The music business is unlikely to adopt such a business model, however, as industries reliant on advertising have been hard hit by an advertising slump in recent years.

Vinyl countdown

Industry insiders also point out that conventional audio CDs have only finite shelf-lives, and that digital music collections can themselves be lost, through computer error or theft. "If consumers want to keep music, they should buy vinyl – it lasts for years," a music executive told Macworld.

In related news, Roxio will launch its Napster 2.0 beta service today during a launch event in New York at 10.30am EDT (3.30pm BST). The service will launch proper October 29, the company Web site claims.

The digital distribution industry is an increasingly crowded place – AOL Time Warner yesterday revealed plans to launch a European music download service by next spring and an online radio station next week. This service will be available to AOL subscribers.