This autumn is a busy time for digital music in the UK: next-generation iPods, eMusic launching in Europe, the announcement (but not launch) of the advertisement-supported SpiralFrog and Microsoft's new 'Zune' MP3 player, promised for the Christmas market.

From a lawyer's perspective, eMusic may be the most radical of these developments, because its business model, while involving payment, does not involve the digital rights management technologies which are used by the rest of the industry to limit the onward distribution of digital copies, albeit with limited success.

October has also seen agreement among a large section of the industry on the level of royalties that composers and their representatives will receive for digital music exploitation in the UK. Acting on behalf of composers and music publishers, the MCPS-PRS Alliance – comprising the Mechnical-Copyright Protection Society and the Performing Right Society – wanted 12% of all income but settled for a three-year deal with royalties of 8% for down-load services and 6.5% for services not 'on-demand', coupled with minimum royalties. The deal was struck with the British Phonographic Industry (BPI), the UK record company trade association, together with iTunes and four mobile phone companies on the eve of a four-week hearing of the Copyright Tribunal.

Settlement removes from the lottery of judicial determination something that impacts on the viability and profitability of all those involved in the digital music value chain. While many other aspects of digital music's future are still unclear, for the first time in the UK there is now certainty about the level of composer royalties for a period of time in excess of 12 months. However, the settlement has not resolved all outstanding issues for all parties and the tribunal will sit in November to determine a number of outstanding issues relating to composers' remuneration in the digital world.

But what do customers make of it all? The recently-published Digital Music Survey 2006, conducted by Entertainment Media Research and sponsored by Olswang, revealed that of 3,000 UK consumers questioned, 50% undertake legal downloads, up from 35% in 2005. However, 36% of all respondents still under-take illegal downloading, down only a fraction on last year's figure.

This supports the anecdotal belief in the industry that those new to digital music are now more likely to stay legitimate, while those with the habit of breaking the law remain harder to dissuade.

Even so, more than half of those currently downloading illegally say that they plan to do so less in the future. The most common reason for this intended change, cited by 42% of those planning to decrease their illegal activity, is fear of prosecution, while 36% are concerned about viruses.

This suggests the high-profile campaign of suing infringers, headed by the BPI, is paying some dividends in terms of people's planned behaviour, even if we have yet to see that intention turn into the reality of people stopping illegal downloads.

Illegal downloading is also supported by a broader music-sharing culture that is clear from the survey results, extending beyond file-sharing networks to communities of friends sharing their music – 67% of respondents share music with their friends with 15% admitting to sharing 'a lot of it'.

New technologies are fuelling this growth, with more than half of respondents sharing by means of swapping hard drives, via instant messaging and/or by email. While the BPI has made clear that it does not propose to enforce UK copyright law against those that 'rip' (or copy) their own CDs onto their iPods, these new forms of behaviour demand that the industry again weigh up the benefits of enforcement against the possible PR backlash.

Of course, the sharing culture is not simply bad news and, from a marketing perspective, the survey reinforces the importance of the growing culture of community sites and user-generated content. About three-quarters of all respondents and more than 90% of teenagers use MySpace, Bebo and similar community sites.

Nearly a quarter of users rated the impact that such sites have had on the way they buy music as 'big' or 'massive' and only 43% of people agreed that the sites have only little or no impact. More than half claim to have discovered music that they love on community sites. No wonder MySpace has announced its intention to become a music vendor and that the industry continues to devote time to capturing this enthusiasm, even if stories such as Arctic Monkeys owing their success solely to MySpace continue to be exposed as urban myths.

The survey also looked at digital music devices. By a factor of 2:1, respondents would rather that device was a phone. Indeed, even iPod owners would prefer a phone with music functionality to an iPod or other digital music device with phone functionality. This clearly has an impact in terms of the market structure and possible competition law and regulatory issues. Those whose voices have been raised against Apple's market dominance – 80% of the UK market is the consensus estimate – may have spoken too soon.

However, while these results may seem positive for the many players in the mobile arena, especially handset manufacturers, there is also a note of caution for the mobile operators, whose revenues are dependent on network usage: it is clear that, aside from some early adopters, people do not yet believe that using their mobile phone network is a sensible way to download music.

Last year, 21% of people stated an interest in doing this, yet, despite the growing awareness of the music capabilities of phones and 11% of people now actually downloading music over mobile networks, the overall interest level has only crept up to 25%. People seem to be much more wedded to the idea of 'sideloading' using fast and cheap or free broadband to access content and then transferring it to a phone via infrared, wi-fi or a network cable.

Finally, it is not easy to predict the impact of digital music on overall music market economics. While 13% of down-loaders have stopped buying CDs and another 30% are buying fewer, the overall financial impact, according to respondents, is perceived as neutral.

A little more than half of downloaders believe that they spend about the same on music as they ever did, with the remainder split evenly between those who think they spend more and those who think they spend less. Both of these groups quantify their spending habits in similar ways – asked how much more or less they spend over a six-month period, 36% spend over £20 more, while 33% spend over £20 less.

John Enser is a partner and head of music at Olswang.