Apple Off-Key on iTunes

"Apple is going to keep selling iPods, that's where all the profit is for them," he says. "Not in the iTunes Music Store."

"I don't really think this [report] is bad news for Apple but I do think this is challenging for people who sell music," Bernoff says, referring to the music labels like Vivendi's Universal Music Group, Warner Music Group (WMG Quote), Sony's (SNE Quote) BMG and EMI.

Buying music online hasn't replaced the CD-buying habit, Bernoff says. Listeners are ripping their CDs to their iPods, downloading music for free, or burning CDs and sharing them, which is "done by more people than any other form of piracy."

He added that online music stores are "no prescription" to save the major labels. The companies need to find additional revenue from ringtone sales and selling unprotected MP3s, for instance.

(Microsoft (MSFT Quote), for one, has already made concessions to the music industry and will pay interested labels a cut of every Zune player sold.)

Even if the report doesn't spell doom for the iPod maker, it provoked the second notable ding to its stock this month. Shares dipped to $86.90 last week after CIBC World Markets analyst Ittai Kidron released a note speculating that the widely anticipated iPhone will launch later than many expected.

Meanwhile, Apple iPods continue to sell well at online retailer Amazon.com (AMZN Quote), holding eight of the top ten spots in the MP3 player category.

Rounding out the list are two SanDisk (SNDK Quote) players, which have moved up the list to hold two of the top five spots.

Microsoft's black Zune is at No. 19.