Apple is currently the second largest US music retailer after Wal-Mart, but seems set to overtake the competing retailer for the top spot this year.

Apple yesterday announced Tunes has become the number two music retailer in the US, citing data from the NPD Group.

Now, Russ Crupnick, NPD Group's entertainment industry analyst believes: "Digital sales were up close to 50 per cent and CD sales were down 20 per cent last year. Even at half that growth rate in digital sales, Apple will in all likelihood catch Wal-Mart this year."

Legal music downloads now account for 10 per cent of the music acquired in the US.

Interest in music has never been higher but new research from the NPD Group suggests labels may have lost a link with younger music fans.

File-sharers as a percentage of the US internet population reached 19 percent and the number of files each user downloaded increased. P2P music sharing continued to grow aggressively among teens.

NPD estimates that one million consumers dropped out of the CD buyer market in 2007, a flight led by younger consumers. The report claims 48 per cent of US teens didn't purchase a single CD in 2007, compared to 38 per cent in 2006.

The amount of music that consumers acquired in the US increased by 6 per cent in 2007, but increased digital sales could not offset declining CD sales, which resulted in a net 10 per cent decline in music spending (from $44 to $40 per capita among internet users). As a result the overall portion of music acquisition that consumers actually paid for fell to 42 per cent in 2007 from 48 per cent in 2006

Twenty-nine million consumers acquired digital music legally, an increase of 5 million over the previous year. Sales growth was largely driven by consumers aged 36 to 50 – a segment that was aggressively acquiring digital music-players in 2007.

“The continued growth in legal download sites is encouraging, yet the industry struggles to improve the value of each digital customer,” said Russ Crupnick, entertainment industry analyst for The NPD Group.

“With so many baby boomers and gen-Xers entering the market, there are certainly opportunities to sell more digital albums, promote older catalogue titles, or create bundles that will raise revenues. In the near term that’s going to be the best means available to narrow the gap on dwindling CD revenues.”