The music industry may be threatening itself as it moves to aggressively pursue music file traders, argues Raymond James and Associates analyst and vice president Phil Leigh.

The Recording Industry Association of America (RIAA) has begun litigation in the US against individual file traders, at the same time as exploring new relationships with digital music distribution services, such as iTunes Music Store and OD2.

The effect has been a 22 per cent drop in peer-to-peer file trading activity between mid-June and late August, Leigh says. However, the move may also have broken the relationship between music consumers and the labels.

"Unfortunately, it also appears that the declining trend in CD sales accelerated during the period of reduced file trading," he writes.

"From June 15 to August 3, CD sales dropped by 9.4 per cent. However, on June 15, CD sales were down only 6.1 per cent year-to-date. The increase in the rate of decline (from 6.1 to 9.4 per cent) translates to acceleration in the rate of decline," he claims.

Leigh admits that a seven-week measurement cannot be seen as conclusive, as other factors, such as holidays, quantity and quality of releases, can affect such figures.

But the analyst isn't optimistic: "The initial data is not encouraging for the labels as it suggests that the fundamental premise underlying their deterrence strategy is flawed. Specifically, curtailing file trading may not improve CD sales, but instead may accelerate their decline."

Looking at the figures, Leigh believes the prepackaged CD format has "seen its best days".

"The transformation of recorded music sales from physical distribution to Internet distribution is inevitable," he says.

He advises that the labels should "continue their steps in the direction of friendly consumer-use licensing terms for their content to the legitimate Internet music distributors."

Looking forward, Leigh predicts that once the labels enjoy profits from the new medium, then movie studios will be "right behind them", predicting a second wave of legal distribution services.

"This implies years, if not decades, of rapid growth ahead for the successful pioneers," he concludes.