Apple Rocks, As Usual

When it comes to music, Apple (Nasdaq: AAPL  ) is still the one and only headliner.

I'm not just talking about digital music, where Apple's iTunes Music Store is clearly the category killer. Even if other music movers tack on physical CD sales, Apple still outsells them all when you split up Apple's track sales into CD equivalents.

 

Music Sales (January-June 2008)

 

1.

Apple

iTunes

2.

Wal-Mart (NYSE: WMT  )

Wal-Mart, Walmart.com

3.

Best Buy (NYSE: BBY  )

Best Buy, BestBuy.com

4.

Amazon (Nasdaq: AMZN  )

Amazon.com

5.

Target (NYSE: TGT  )

Target, Target.com

Source: NPD Group.

Yesterday's press release out of NPD, ranking the top music retailers through the first six months of the year, may be old news. Apple passed Wal-Mart earlier this year, and there is little reason for it to look back. CD sales continue to fade. Digital music sales continue to grow.

The digital revolution
Fame has come quickly for Apple. Four years ago, it wasn't even one of the 10 largest retailers of music. Then it passed standalone record shops such as Tower and Sam Goody and bookseller Borders (NYSE: BGP  ) to chart at No. 7 -- with a digital bullet -- toward the latter half of 2005.

Do you even see any of the once-prolific shops on the list, much less around your neighborhood? The Musicland and Virgin megastore types were replaced by consumer-electronics superstores and discount department stores a few years ago. It's only fitting that the digital storefronts are now beating the real-world stores.

That's exactly what happened with Amazon. It trailed Target last year. Now it's making a move for the bronze medal. NPD points out how Amazon's CD business has held up better than that of mainstream retailers. A combination of the online shopping migration and Amazon reaching an older audience (the youths who used to frequent traditional record shops have turned to legal and illegal downloads) finds the leading online retailer gaining, even if its digital music initiatives are no threat to Apple at the moment.

Major labels, unplugged
This is the kind of trend that should excite major labels like Warner Music Group (NYSE: WMG  ) . Digital music offers higher margins given zero pressing costs, no inventory to manage, and no fear of returns piling in of unpopular releases. The move away from the cool record stores may sting vinyl hipsters, but it means that the labels can spend less money at the local level in promotion -- since terrestrial radio is less relevant and CD-only shops are closing -- and more time getting bands noticed.

That's the rub, of course. The music industry is changing, and the labels are no longer the vetting machine. Singers are launching careers on television shows. Bands are building audiences on social-networking sites. The labels, like the stand-alone record shops, are starting to feel one-way and dated.

Bands no longer need the fat contracts to get noticed. Home recording gets cheaper and better. I've been saying this for six years, at least. It's all starting to come together, though. The playing field is nearly level. Apple is the now that cool friend of yours that sneaks you off in the middle of the night to hear an indie band play at the town's edge, suggests a few more artists up your alley, and then hands you the mix tape that will weld itself to your eardrums over the next few weeks.

No one is going to catch up to Apple. In a year or two, Amazon will have surpassed Best Buy, breathing down Wal-Mart's back for the silver.

You know it's going to happen, because tomorrow's news can be old news as well.

Press play to continue:

Wal-Mart Stores, Borders Group, and Best Buy are Motley Fool Inside Value picks. Best Buy, Amazon.com, and Apple are Motley Fool Stock Advisor picks. The Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has bought more digital downloads from Amazon than CDs this year, but that's not saying much. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On August 06, 2008, at 3:30 PM, nycssmith wrote:

    I prefer having the actual CD's in my hand and uploading them to my IPOD. It's nice to know who actually worked on the albums and read who made the music possible. I know the artist of today are not doing it by themselves. They are not that good! It'll be sad when we can only buy music on-line. What fun is that!

  • Report this Comment On August 06, 2008, at 6:13 PM, trgeorge wrote:

    Really? You like to read who made the music possible? So do you also sit around for the credits at the end of a movie so you can find out who the asst costume designer was? As you said, What fun is that!

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