Over the past few years, we have watched Apple climb the music sales chart courtesy of the iTunes. Last month we learned that Apple passed Best Buy to become the number two retailer in the the US in December. Now, Apple has ascended to the top of the charts, surpassing Wal-Mart for the first time ever, according to an NPD MusicWatch Survey for the month January contained in an internal Apple e-mail which was leaked to Ars Technica but has not been officially published.

The news was announced in an e-mail sent this afternoon to some Apple employees, a copy of which was seen by Ars Technica. It includes a screenshot of an Excel file showing the top ten music retailers in the US for January 2008, and Apple is at the top of the list. The iTunes Store leads the pack with 19 percent, Wal-Mart (which includes the brick-and-mortar stores as well as its online properties) is second with 15 percent, and Best Buy is third with 13 percent. Amazon is a distant fourth at 6 percent, trailed by the likes of Borders, Circuit City, and Barnes & Noble. Rhapsody is in the tenth slot with 1 percent.

The fact that a digital-only retailer has ascended to the top of the sales charts is not unexpected, but it does demonstrate just how much the music landscape has changed since the beginning of the decade. The NPD Group has been tracking a "sharp increase" in digital downloads over the past several months as physical sales dry up. According to NPD's research, 48 percent of US teens didn't buy a single CD in 2007, compared to 38 percent in 2006.





Apple sits atop the NPD Group's list. At the request of the NPD we

have removed screenshots of the documents in question

It has been a dizzying climb for Apple, which only managed to pass Amazon to become the number three music retailer in June 2007. The biggest surprise is Amazon's drop to the number four slot, which might be explained by consumers using iTunes, Wal-Mart, and Best Buy gift cards to buy music after the holiday season—and those gift cards certainly helped propel Apple to the number-one position.

For the music industry, there is a dark side to Apple's ascension to the top of the charts. Buying patterns for digital downloads are different, as customers are far more likely to cherry pick a favorite track or two from an album than purchase the whole thing. In contrast, brick-and-mortar sales are predominantly high-margin CDs. For 2007, that translated into a 10 percent decline in overall music spending according to the NPD Group, and it's a trend that's expected to continue for the foreseeable future.

Overall, paid downloads accounted for almost 30 percent of all music sold in January, a number that would have been unthinkable just a few short years ago. With the Big Four labels throwing off the DRM shackles and experimenting with new delivery models like Last.fm's free streaming service, the future looks bright for digital music distribution.

Update: note on "debunking"

We have seen some stories this morning claiming to have debunked this report based on conjecture (no factual detail or analysis). We repeat: the document says what we said it says, and you can see it for yourself. The documents were also distributed to Apple employees, and show Apple as the number-one music retailer during the period in question. That can't be debunked, sorry. (Sure, you can claim that the data is bad, or sampled incorrectly, but there's no proof of that yet.)

Also, I already noted that the results are influenced by gift card usage, and I noted that other retailers on the list have gift cards, too—don't forget that fact. A sale is a sale, as well. We could also argue forever over whether or not gift cards sales matter, but note that no one was bothered by Apple's December results which included a great deal of gift card purchases as well (but didn't inspire any debunking that time around).

This is a monumental event for Apple, because while the company may not be guaranteed the top spot for eternity—or even the following month—it is something many thought would never happen. But in closing, rest assured that this report is accurate.

Update 2: Apple confirms

Press release here.