NLINE music swapping services like Napster, KaZaA and others have battered businesses in every corner of the music industry. But no group has taken it on the chin as much as the Internet's CD merchants, whose online turf is being increasingly overrun by free music.

An Internet research firm, comScore Networks, said last week that sales by online CD retailers had fallen sharply in the first nine months of this year, as file-sharing services like KaZaA, Morpheus and others have added millions more users.

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Another factor could be the emergence of music sold through digital downloading using services that include Pressplay and MusicNet, which are backed by some of the major recording companies. But analysts say such sales are still too small to measure and cannot yet be viewed as a true substitute for purchasing music on CD's, tapes or records.

Revenue among online merchants of CD's and other packaged music was 39 percent lower in this year's third quarter than in last year's comparable period, which included the post-Sept. 11 sales slump.

The plunge in online CD sales is part of, though steeper than, the overall decline in packaged music sales for the recording industry. For the first nine months of the year, those sales — in-store and online combined — were off 13 percent, compared with last year's nine-month period, according to Nielsen SoundScan, a music industry research firm. Online sales have accounted for less than 4 percent of the 526 million CD's, records and cassettes sold so far this year, according to Nielsen SoundScan.

Meanwhile, the free music-swapping services have had steady increases in traffic, comScore said, with about 15 million people using the services in the second quarter of this year, compared with about 10 million a year earlier. ComScore did not track all the music-swapping services in the third quarter, but for those it did, the user numbers were rising.

The music industry has attributed the overall drop in music sales to a variety of factors, including a soft economy and fewer hit songs. But analysts said there was no avoiding the fact that people who surf the Web for music are finding it increasingly convenient not to pay for their tunes — particularly if it means waiting overnight or longer for the music to arrive by delivery service or mail.

"Online music sellers have a really tough sell," said Lee Black, an analyst with Jupiter Media, an online consultant. "A lot of these guys are feeling really burned these days. They got into selling music online when the market looked good, but then as it matured, it wasn't about selling CD's anymore."

Indeed, before Amazon.com expanded into CD's and took control of that online segment, companies like CDNow, Music Boulevard and others were vying to dominate what was once believed to be a lucrative Internet niche. But now, with online sales of all products growing this year at a pace of 30 percent while online music sales plummet, CD sellers look like the biggest losers in the bunch.

Amazon, using promotions and free samples, says it is one of the few companies that has managed to sustain CD sales growth this year, although the company declined to provide sales figures and comScore does not break out data for individual retailers. Amazon's executives do acknowledge, though, that they have felt the effects of the free music services.

"It's frustrating to see sales going to illegal channels," said Jeff Somers, Amazon's head of music merchandising. "But there are things we're doing to address file sharing and downloading."

Mr. Somers said the company had found success by stealing some of the thunder of the music swapping services. That is, it is giving away digital music files.

For instance, Mr. Somers said last week that the company was offering tens of thousands of songs in its Free Music Downloads section, including recent releases by Madonna, the Hives and Diana Krall. Artists who record for major companies typically offer the songs in a copyright-protected format so users cannot store or copy the files from their hard drives to other media. Independent artists more typically offer their songs as MP3 files that users can copy onto CD's if they choose.