Responsible for a significant proportion of Apple's decade high profit in the last quarter, and now the biggest seller of all Apple products, iPod stocks might not meet Christmas demand.

Despite assurances that Apple is churning out more iPods than ever, Jobs is concerned that demand might outstrip supply in the run up to Christmas.

At the opening of a new mini retail store in Palo Alto, California he said: "We've taken our best guess, and we're building a lot, but the demand may be even larger. So if you want to be sure to get an iPod this holiday season, I'd get one soon."

iPod takes the lion's share

In what could be symbolic of the relevance of the iPod to Apple's business, half the new store is devoted to the iPod or iPod related merchandise, points out Metroactive reporter Todd Inoue.

"It's only natural for Jobs to devote half his store to the portable music player. The iPod helped push Apple to its biggest quarterly growth in nine years. Two million iPods were sold in the last quarter (compared to 860,000 the previous quarter). And with Christmas around the corner, holiday demand could make the mid-'80s run on Cabbage Patch Kids look like child's stuff," he writes.

Advertising Age's Beth Synder talks of "the iPod economy". She describes "an exploding universe in which marketers such as Hewlett-Packard, Kate Spade, Bose and BMW are tapping into Apple’s portable music player to boost their own sales and brand equity."

Jupiter Research's Michael Gartenberg said: "Apple has spawned something very powerful. The iPod is not just a consumer-electronics device; it’s a cultural icon. And Apple understands that. By making strong associations with other very strong brands, it establishes the iPod as a platform, ultimately using that as a way to get the iPod experience into consumers’ hands."

The Advertising Age report also highlights that Apple itself is trying to borrow the buzz of iPod to fuel sales of its other hardware. It is plugging the new iMac G5 with the tagline, "From the creators of iPod." While that slogan currently appears only on Apple’s Web site and in a few print ads, it is believed that it will be used more widely.

“It would be a mistake for people to think Apple is going to make the mistakes they’ve made in the past,” said Mike McGuire, director of research at Gartner G2. “IPod is clearly now a crucial strategic part of the company. But they’ll be very careful about how they extend the brand going forward, and how they share that brand equity with others.”

Downloads v CDs

As Apple – and the appearance of these mini stores – focuses more attention on the iPod does this forecast the end of the traditional distribution of music?

Growth in digital downloads has exploded, with 99.5 million tracks sold year-to-date, according to Nielsen SoundScan. According to recent reports an all-Internet-based music distribution model where bands sell music via downloads instead of CDs is predicted for 2009. Some don't agree.

Streetlight Records general manager Jeff Moss told Metroactive: "There's a plenty big enough market for independent record stores who cater to those who are deeply into music and like to be in an environment where people who like music are. The whole shopping experience, that feeling of community, is a social experience that you can't duplicate online by any means."

CD sales down

However, industry officials have said that while US album sales have enjoyed a recovery for most of the year, they have now fallen for five straight weeks, raising the stakes for the crucial year-end selling season.

Universal Music Group CEO Doug Morris told Reuters: "The industry feels solid even though there's this nagging thing about the last five weeks."

Sales in the week ending October 17 dropped 12.4 per cent to 10.6 million units from 12.1 million last year, according to industry tracker Nielsen SoundScan.

The slowdown follows a rebound in the first eight months, bringing total album sales year-to-date up 5 per cent to 484.6 million units from 461.2 million.

Billboard director of charts Geoff Mayfield said: "We're into tougher comparisons now. After months of comparable gains, it's depressing to see a streak like this, but sooner or later Christmas happens and I'm cautiously optimistic the fourth quarter can meet last year's fourth quarter."

Apple lifestyle

The company sells a "lifestyle" not an MP3 player, according to Griffin VP Andrew Green. "Buyers of iPods are buying into a club. They know that, and want that.”

Is this any different to the "lifestyle" Apple has been selling for years through its Mac line up? The iPod may have become the heart of Apple. But is the company, and the industry as a whole, forgetting Apple's Mac roots? Tell us what you think in the forums.