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Has the iTunes Store failed to kill the CD?

Despite all the attention the media has lavished on the iTunes Store, CDs still dominate music purchases by a huge margin, according to a study released Monday by the Pew Internet and American Life Project.

The survey, conducted by phone last August, focused on how the Internet influences consumer purchases of music, cell phones and houses.

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The Pew report says 82 percent of music buyers still prefer the old-fashioned CD. An eyebrow-raising 62 percent said they purchased all their music on CD, with 20 percent more saying most of their purchases were CDs. Only 12 percent said all (5 percent) or most (7 percent) of their purchases were via digital download.

How can this be? Just last month research firm NPD declared Apple the Number One U.S. retailer in January with 19 percent of the market. (Wal-Mart was second with 15 percent and Best Buy third with 13 percent.) Furthermore, the NPD report said digital downloads made up nearly a third of music purchases in January.

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We keep reading news stories about plummeting CD sales and rising downloads. It doesn't seem to add up, but I think there's an explanation.

First let me say I believe Pew's data is solid. In fact, it almost perfectly mirrors the RIAA's 2007 consumer profile statistics. That data shows CDs comprising 82.6 percent of sales, compared with 11.2 percent for digital downloads.

The RIAA also supplies annual data, which helps put the digital numbers in perspective. In 2006, digital downloads comprised just 6.7 percent of music sales. That means digital download sales jumped 67 percent in one year. As recently as 2004 digital downloads made up less than 1 percent of sales.

I suspect part of the reason the Pew survey seems at odds with recent trends is that it was conducted six months before the NPD report. Remember, it was only in June 2007 that Apple ascended to Number Three among music retailers (again, according to NPD data).

Back then Wal-Mart led with 15.8 percent of the market, followed by Best Buy with 13.8 percent. Apple had just 10 percent. That means from June to January Apple nearly doubled its market share.

I imagine the Pew researchers would likely get significantly different results were they to conduct a music-buying survey this month.

While CD sales may continue to outpace digital downloads for some time, the digital revolution cannot be denied. Eventually digital downloads will surpass CD sales, just as CD sales overtook vinyl LP sales in the 1980s.

Research organization In-Stat said last month that digital sales will account for 40 percent of all music sold worldwide by 2012, up from 10 percent in 2007.

Yet another NPD report issued in February estimated that 1 million consumers abandoned the CD in 2007. From the press release: "In fact, 48 percent of U.S. teens did not purchase a single CD in 2007, compared to 38 percent in 2006."

Even the Pew survey hints at the digital future of music retailing. A chart that breaks down purchasing habits by age group shows younger consumers moving rapidly away from CDs in favor of digital downloads.

In the 18-to-36 age group, 27 percent said they bought digital downloads at least half the time. Only 13 percent of those in the 36-to-50 age group said the same; for the over 51 crowd, the number fell to 6 percent.

Since the iTunes Store holds about 70 percent of the worldwide legal download market, Apple stands to reap great rewards from the inexorable move of music consumers -- led by the youngest among us -- away from CDs to digital downloads.

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