Does P2P still have the clout to kill iTunes?

With the virtual tills at iTunes' still ringing healthily and a host of download wannabes vying for their respective niche in the market, you'd be forgiven for thinking the download sector is the next internet cash cow. Not so, according to new research, which predicts web music companies' best efforts will still be thwarted by the ever-present threat of piracy.

Despite online music downloads showing continuing growth they will still be forced to give ground to illegal services, says a report from Informa Media Group.

Informa expects online download sales to rise from 4.5 per cent of all music sales this year to 11.9 per cent by 2008, earning the music industry around $1.8bn.

And while the news sounds like music to the ears of digital song shops, Informa highlights that illegal P2P downloading cost these legitimate services around $4.7bn in lost sales by 2008, almost double the current shortfall of $2.4 this year.

Simon Dyson, author of the report said in a statement: "The determination of the P2P community to develop services that allow users to share music anonymously will keep a lid on any attempts to develop a legitimate download sector."

However, Alan Lawson, research analyst at the Butler Group, told silicon.com that he expects to see users embracing the legitimate model eventually, though more effort is needed from the music industry to make their offers more compelling.

He said: "Users are realising you can't have a free lunch forever, so you have to go for the next best thing – low price and reasonable quality. If record companies can get their heads round that, they can start making some money."