ITunes Ranks With Music Retailers

Apple's (Nasdaq: AAPL) iPod and iTunes Internet music service helped the computer company break into the top 10 music retailers this year, taking digital distribution where it has never gone before and topping the likes of Tower Records and Sam Goody, according to market researcher NPD Group.

NPD, which used an equivalency of 12 tracks sold online compared to a CD sold in the store, said Apple's iTunes was number 7 of the top 10 music retailers, led by Wal-Mart, Best Buy (NYSE: BBY), Target and Amazon (Nasdaq: AMZN) during the third quarter of this year.

Although the iTunes presence in the face of lagging physical sales represents the growing preference for digital and portable music, analysts agreed that Apple stands alone in its market share and music popularity among consumers.

"There's nobody that comes close," NPD analyst Russ Crupnick told MacNewsWorld regarding other digital music providers. "There's iTunes and there's everybody else. It's the nexus of player and digital music site, and until a challenger is really legitimate, it's difficult to see anyone taking market share away form them."

A Leading Retailer

While the top four music retailers remained the same compared to last year's third quarter, Apple managed to push up from number 14 on the list to seventh.

Crupnick credited the natural growth of online, digital music and the struggle of CD retailers.

The analyst, who indicated NPD looked at the PC world and did not even include Apple computers in its study, said he expects Apple's dominance of digital music and its climb up the retail charts to continue with expected holiday sales of iPods and iTunes gift cards.

"With the growing interest in digital music, forecasts of more iPod demand this holiday, plus the stocking-stuffer appeal of iTunes gift cards, we can expect Apple to increase its share even more by year's end," Crupnick said in a statement.

IPod Is It

Jupiter Research Vice President Michael Gartenberg told MacNewsWorld while CDs will stay around, the iTunes retail ranking highlights how digital music has grown beyond techies and hard-core users.

"We certainly don't believe that the CD is going to disappear overnight and be replaced by downloads," he said. "This does indicate how digital music has become mainstream. Apple has demonstrated a viable business model."

Gartenberg said the portability of music delivered with the iPod is the reason for Apple's success .

"Right now, the driver for digital downloads is the ability to play music on a portable device," he said. "The only portable device that matters in the market is the iPod."

The analyst added that competitors looking to cut into Apple's dominance need to find a device that appeals to consumers like the iPod does, and to differentiate their services through subscriptions or other methods that differ from Apple's dollar-per-tune model.

"They've really failed in both of these spaces," Gartenberg said of competitors.

Opportunity in the Middle

Still, NPD's Crupnick said there is still opportunity in the digital music market, particularly beyond early adopters and music fans.

"There's a whole missing middle," he said. "So there's still a tremendous market opportunity to reach more people."

Still, Apple's dominance was apparent as Crupnick reported Apple held more than 70 percent market share of online music in the first nine months of the year, while the nearest digital music competitor was Napster with about 10 percent market share.