Music sales around the world have tanked with demand falling 7% overall. CD sales fell 12.7% according to a new research report. Digital music sales from sites like iTunes rose 9.2%.

According to a new report from record label trade group, IFPI, worldwide recorded music sales fell 7% in 2009 to $17.03 billion, as sales of physical products like CDs dropped 12.7% globally. Meanwhile, global digital music revenues were up 9.2% in 2009, to $4.31 billion; 30 countries saw double-digit growth in digital sales, and 17 markets saw growth of more than 40%. Digital now accounts for 25.3% of all music sales globally, and 43% of the U.S. recorded music market.

Overall, the U.S. and Japan were said to account for 80% of total industry losses, as the worldwide decline in revenues outside these two territories was just 3.2% for the year.

The sharpest declines in revenues were seen in Italy (-17.4%) and Spain (-14.3%), which the IFPI said have “some of the world’s weakest legal defenses against piracy.”

IFPI noted that the best-selling album globally in 2009 was Susan Boyle’s “I Dreamed a Dream,” which sold 8.3 million units.

Despite gains in revenues from live music, songwriters’ music copyrights and the performance rights market, IFPI found that the broader music industry — whose definition also includes radio advertising, live performance sales and the sale of audio equipment — declined 8% to an estimated $140 billion in 2009.