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The number of Internet users paying for digital music increased by just over 8 million in 2008 to 36 million Internet users, according to a new study from The NPD Group.

Purchases of online digital music downloads increased by 29 percent since last year; they now account for 33 percent of all music tracks purchased in the U.S. NPD's Digital Music Study, also found that there were nearly 17 million fewer CD buyers in 2008 compared to the previous year.

Russ Crupnick

The decrease in CD buyers applies to all demographic groups, but was particularly focused on teens and people over the age of 50. "Rising incidence of paid downloads is a positive development for the industry, but not all lost CD buyers are turning to digital music," said Russ Crupnick, entertainment industry analyst for The NPD Group.

The study also revealed there were 13 million fewer music buyers in the U.S. last year, compared to the prior year. The drop in music purchasing was led by a 19 percent decline in CD sales. Only 58 percent of Internet users said they purchased CDs or digital music last year, compared to 65 percent in 2007.

The study found there is evidence that music listening is increasing. Awareness and usage of Pandora doubled year over year to 18 percent of Internet users; one-third of those who were aware of Pandora report using the service.

Social networks are also playing a larger role when it comes to listening to music. The percentage of people reporting they listened to music via a social network rose from 15 percent in Q4 of 2007 to 19 percent in Q4 2008. Close to half of U.S. teens are engaging with music on social networks, an increase from 37 percent a year ago. For college-age Internet users the percentage increased from 30 percent in 2007 to 41 in 2008.

"The trends we're seeing in our consumer tracking studies are evidence of the continued transformation of the music industry," said Crupnick.

"Just as music piracy and the advent of digital music ended the primacy of the CD, we are beginning to see new forms of listening challenge the practice of paying for music. The music industry now has to redouble efforts to intercept and engage these listeners, so they can create revenue through upselling music, videos, concert tickets, and related merchandise."