LONDON (Reuters) - The music business broke a 12-year losing streak in 2012, posting a small but symbolic 0.3 percent rise in trade revenues to $16.5 billion, figures from the International Federation of the Phonographic Industry (IFPI) showed on Tuesday.

The slight increase will come as a relief to record label bosses who have watched the value of sales plummet from a peak of $28.6 billion in 1999, as illegal downloads and a reluctance to embrace the digital age hit revenues hard.

Once again it was the digital sector that showed the strongest growth, and for the first time more than compensated for losses in physical revenues.

"At the beginning of the digital revolution it was a common theme to say digital is killing music," said Edgar Berger, president, international, at Sony Music Entertainment.

"Well the reality is, digital is saving music. I absolutely believe that this marks the start of a global growth story. The industry has every reason to be optimistic about its future."

Record companies' digital sales rose about nine percent last year over 2011 to $5.6 billion and accounted for 34 percent of income overall.

Download sales increased 12 percent to 4.3 billion units globally. Digital album sales rose 17 percent to 207 million.

Subscription services such as Spotify and Deezer "came of age" last year, according to the IFPI, and are expected to cross the 10 percent mark as a share of total digital music revenues for the first time.

Spotify has more than five million paying subscribers compared with three million at the end of 2011, and is the second largest source of digital music revenue in Europe.

Deezer has also expanded rapidly, reaching three million paying subscribers worldwide.

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Executives said the increasing number of digital platforms had helped companies broaden their revenue base, and more services coming on stream were good news for the business.

"Until recently, the vast majority of our revenues came from a handful of countries," said Stu Bergen, head of global marketing, recorded music, at Warner Music Group.

"Today, digital channels mean we can monetize markets worldwide much more effectively."

There are ongoing tensions, however, between record labels and the technology companies who distribute their music, particularly over how revenues are shared and who has the real power in a rapidly shifting business landscape.

According to the IFPI, the most successful album of 2012 was British singer Adele's "21" which sold 8.3 million copies from 18.1 million in 2011.

U.S. artist Taylor Swift came second last year with "Red" (5.2 million), British boyband One Direction took third and fourth positions with "Up All Night" and "Take Me Home" respectively (4.5 million and 4.4 million), and U.S. singer Lana Del Rey came fifth with "Born to Die" (3.4 million).

In the digital singles charts, Canada's Carly Rae Jepsen claimed the crown with "Call Me Maybe" (12.5 million copies sold) followed by Belgian-Australian Gotye with "Somebody That I Used to Know" and Psy of South Korea with "Gangnam Style".

Brazil's Michel Telo was sixth with "Ai Se Eu Te Pego".

While the focus was on growth in the digital sector, physical format sales still accounted for 58 percent of revenues in 2012 down from 61 percent in 2011, and declines in the CD market in many countries continued to pose major challenges.

The IFPI, which represents the recorded music industry led by three "major" labels Universal, Sony and Warner Music Group, also stressed the role the music industry played in the broader digital and social media explosion.

It said the top four figures in terms of Twitter followers were pop stars - Justin Bieber, Lady Gaga, Katy Perry and Rihanna - followed by U.S. President Barack Obama.

Officials vowed to continue their fight against online piracy by urging Internet service providers to block access to illegal sites, demanding search engines to prioritize legal providers and discourage advertisers from featuring commercials on illegal sites.