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Apple Rocks On With Digital Music

Stocks in this article: AAPL

"They don't really need to do anything crazy -- the competition is not there right now," added the analyst. "There is no one that is going to dethrone them anytime soon."

According to figures released last month by The NPD Group, Apple owned 69% of the digital music market in the first half of 2009, followed by Amazon (AMZN) MP3 with just 8%. Customers have already downloaded more than 8 billion songs from iTunes since its launch in 2003, but there is room for growth.

The NPD Group found that CDs accounted for 65% of all music sold in the U.S. in the first six months of the year, with digital downloads making up the remainder.

Apple could expand this by pushing more of multimedia experience, according to Gandhi.

"They might want to grow that by offering other things like the rumored 'cocktail' project," she said. "That seems to me more realistic than any other speculation that we have seen."

An attempt to stimulate digital sales of albums, the cocktail project is said to involve interactive booklets and sleeve notes bundled with music downloads. The Financial Times recently reported that Apple is already working with music labels such as EMI and Sony Music ahead of a September launch.

Intriguingly, the invites to tomorrow's event bore the Rolling Stones lyric "it's only rock and roll, but we like it," hinting at some form of high-profile music announcement.

Ultimately, though, Apple's iTunes strategy may be something a sideshow in its broader consumer tech circus.

"They essentially see themselves as a device company," said Gandhi. "iTunes is a good business for them, but it's not what drives them."

-- Written by James Rogers in New York.

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