By Adam Tanner and Scott Hillis
SAN FRANCISCO, April 3 Online music purchasing
marked a symbolic milestone when Apple Inc (AAPL.O) announced
on Thursday that its iTunes music store had surpassed Wal-Mart
Stores Inc (WMT.N) to become the largest U.S. music retailer.
Industry analysts have long expected downloaded music to
eventually replace the compact disc, but said the significance
of Web delivery overtaking physical goods in the music business
is a harbinger for many other industries. Books and videos are
rapidly moving in the same direction.
"People have long talked about the shift to digital music
sales but this seems to be a symbol it is actually happening,"
said Steve Knopper, a Rolling Stone magazine music business
reporter who is writing a book on the music industry in the
Apple's acknowledgment of its growing market share, came on
the same day that News Corp's NWSa.N MySpace social
networking site said it had formed an online music venture with
three record labels, posing a new challenge to iTunes.
Apple said its announcement was based on consumer data
collected in January and February by market research firm NPD
that counted 12 songs being equal to one CD.
"It underscores a very important trend in the industry,"
said Michael Gartenberg, vice president and research director
at Jupiter Research. "It wasn't that long ago that Apple was
proud of the fact that they were No. 4 and rising and (then)
No. 3 and No. 2."
In February, NPD had said iTunes overtook major retailers
Best Buy Co (BBY.N) and Target Corp (TGT.N) in 2007 to become
the No. 2 U.S. music seller.
Apple, which makes iPod media players, Macintosh computers
and the iPhone, said iTunes had attracted 50 million customers
since its online store opened five years ago and that these
consumers have collectively purchased 4 billion songs.
"Now, everyone is going to be looking at how to take a
piece of that away from Apple," Gartenberg said.
The rise of iTunes also has brought a shift in music
purchasing behavior in which many consumers now buy individual
songs rather than whole albums, undercutting traditional music
industry pricing, analysts have noted.
Cheap individual downloads are the latest challenge to a
recorded music industry still struggling to fight a wave of
digital piracy, especially among younger generations. This has
led to a historic decline in sales of CDs, which could soon
join vinyl and 8-track tapes as vintage recording formats.
"It is not good for their profit margins because they don't
make much off of iTunes at all," Knopper said of music labels.
"They used to sell, eight to 10 years ago, and even to a
certain extent today, $18 CDs. They had huge margins on
Shares in Apple rose 2.8 percent to close at $151.61 amid a
1.9 percent gain in the broader Nasdaq market. The stock is
about 25 percent below its all-time high hit in December, but
has risen 25 percent in the last month amid signs consumer
worries over the economy have not dampened Apple's sales.
(Editing by Eric Auchard and Carol Bishopric)