Apple Inc.’s digital music store iTunes is now the third-largest music retailer in the United States with 9.8 per cent market share in the first quarter, ranking behind market leader Wal-Mart Stores Inc.’s with a 15.8 percent share and Best Buy’s with a 13.8 percent share, according to The NPD Group. Apple has overtaken online retailer Amazon.com, which share was 6.7 percent in the first quarter, slightly ahead of the target of 6.6 per cent.

The NPD Group report also highlights the growing strength of digital music in the U.S. market as physical sales of compact discs continue to slide.
Both, Wal-Mart Stores and Best Buy’s, mostly sell music in the CD format. Online store bestbuy.com has a 1.1 percent market share with sales of both CDs and digital music. Amazon also sells music mainly in the CD format, but last month it started selling digital music but without copy protection software such as that used by iTunes.

NPD said the iTunes digital music store had benefited from sales of Apple’s iPod digital music player during the holiday season. The vast majority of digital songs and albums bought on iTunes will only play on iPods, as well as the iTunes PC application.

iTunes last month rolled out a new service called iTunes Plus which sells higher quality digital songs without copy protection at a premium price.

Apple’s rise in the NPD survey reflects a key shift in the music industry: compact disc sales are declining while digital music sales are climbing. That, plus the popularity of Apple’s iPod portable music players, has helped boost iTunes sales.

Still, digital music represented less than a quarter of total music units sold during the quarter, NPD said.