The paradigm goes that Internet has ripped open the flood gates of music access and left the scourge of illegal downloading to run free; there’s middle-aged moms and college students with copious RIAA fees to prove that point. But in a shift in the dynamic, governing body the International Federation of the Phonographic Industry released a report that touts that legal downloading sales are fighting back.

The surge, led by Lady Gaga‘s 9.8 million units, saw singles sales increase overall by 10% to 1.5 billion units in 2009. Digital album sales were also up by 20% to a total revenue of $4.2 billion. Despite the good news, CD sales were down by 12% in the first half of 2009. This is another case of bad news as sales have decreased by 30% since 2004. Compounding the problem is, as expected, illegal downloading, which the IFPI says makes up 95% of all music downloads, even with the number of licensed music services increasing from 50 to 400 between 2003 and 2009.

“Mass piracy is continuing to hurt the industry,” IFPI chief executive John Kennedy said. Illegal downloads, he added, only act as a “disincentive for people to invest in the market.”

Their resolution to the issue is to turn toward the government and enact legislation that would warn users and then disconnect their Internet connection after further violations. Such legislation have already passed in France, South Korea, and Taiwan.

“We are doing all we can to cater for an increasing want to consume music legitimately,” said Rob Wells, senior vice-president, digital, for Universal Music Group International.

While legislation may help, most labels and invested organizations are putting their hopes in the growing licensed music services. While a service like Orange Monkey, which is a pay-as-you-go program from Orange, Universal Music Group and 4Music, has seen 110,000 subscribers since it began six months ago, they’re not always fool-proof. While the program blocked 340,000 illegal downloads, another 50,000 weren’t.