"Contrary to popular belief, the iPad isn’t causing cannibalization in the PC market because iPad owners don’t exhibit the same buying and ownership patterns as the typical consumer electronics customer," the group says. 

NPD found that only 13%t of iPad owners surveyed bought an iPad instead of a PC, while 24% replaced a planned e-reader purchase with an iPad. 

An a more obvious note, the group also found that iPad owners tend to own more Apple products, and are early adopters of other new technologies. 

"Early adopters, like iPad owners, follow a traditional pattern of consumer behavior; they purchase products because they want them, not because they need them," said Stephen Baker, vice president of industry analysis at NPD. "However, as Apple increases iPad distribution and consumer interest peaks, the profile of an iPad owner is much more likely to mirror the overall tech population. When that does happen other tech products with similar usage profiles as the iPad, such as notebooks, netbooks, and e-readers will come under increased pressure from the iPad. Until then, however, most iPad sales are likely to be incremental additional technology devices in the home, rather than a one-for-one replacement of a planned purchase."

There’s no doubt that iPad sales will continue to climb, as will similar offerings from other manufacturers, but it doesn’t look like they’ll be replacing the PC anytime soon. 

50% of the first wave of iPad sales came from people who own Apple computers. That number dropped to 45% among later sales, the group says. 

Meanwhile, for the first time since 2007, RIM has slid to the number 2 position, as Android took the lead.

While Android accounted for 33% of all smartphones purchased in Q2, RIM accounted for 28%. Apple came in third at 22% with the launch of the iPhone 4.

"For  the second consecutive quarter, Android handsets have shown strong but slowing sell-through market share gains among U.S. consumers," said Ross Rubin, executive director of industry analysis for NPD. "While the Google-developed OS took market share from RIM, Apple’s iOS saw a small gain this quarter on the strength of the iPhone 4 launch."

This week, BlackBerry unleashed its new BlackBerry Torch and BlackBerry 6. It remains to be seen what kind of an impact this will have on the market.

"Blackberry 6 will soon offer features that have been popular in recently launched Android handsets, such as support for capacitive touchscreens and a WebKit-based browser. However, the Blackberry Torch lacks the large screen allure that has characterized the best selling Android devices at its price point, including the Droid Incredible and EVO 4G," Rubin said.

The top 5 Android smartphones sold were:

1. Motorola Droid
2. HTC Droid Incredible
3. HTC EVO 4G
4. HTC Hero
5. HTC Droid Eris

Android still has tablets and Google TV to look forward to as far as attracting more users.

Here are the market share numbers for sales in the first quarter according to the report:

RIM: 36%
Android: 28%
Apple: 21%

"As in the past, carrier distribution and promotion have played a crucial role in determining smartphone market share," says Ross Rubin, executive director of industry analysis for NPD. "In order to compete with the iPhone, Verizon Wireless has expanded its buy-one-get-one offer beyond RIM devices to now include all of their smartphones."

Such offers have been available for devices like the Droid, Droid Eris (pictured), and BlackBerry Curve.

As far as carriers, AT&T accounted for 32% of smarthone sales, with Verizon accounting for 30%, T-Mobile accounting for 17% and Sprint accounting for 15%.

"Recent previews of BlackBerry 6, the recently announced acquisition of Palm by HP, and the pending release of Windows Phone 7 demonstrates the industry’s willingness to make investments to address consumer demand for smartphones and other mobile devices," says Rubin. "Carriers continue to offer attractive pricing for devices, but will need to present other data-plan options to attract more customers in the future."

In considering the data from the report, it’s important to keep in mind the methodology behind it. It was compiled from 150,000 completed online customer research surveys. The figures don’t include corporate/enterprise mobile phone sales.

The year-over-year decline was the sharpest since a 41 percent drop in September 2000. "This is one of the first months where I think the impact of the economy is clearly reflected in the sales number, said Anita Frazier, NPD Analyst.

Anita Frazier

"While the aggregate of content may not be as strong as what we saw in the first half of last year, and while the consumer base willing to spend dollars on hardware at the current price points may be thinning, the size of the decline could also point to consumers deferring limited discretionary spending until a big event (must have new title, hardware price cut) compels them to spend."

Nintendo’s Wii remained the most popular game console in June, selling 362,000 units, but down 45 percent from the same period a year ago. The Wii has been the top-selling console in the U.S. for 21 consecutive months.

Microsoft’s Xbox 360 was the second best-selling console in June with 240,600 units sold, up from 175,000 in May. The Xbox 360 was the only console to see a year -over-year increase.

Sony’s Playstation 3 sold 164,700 units and Playstation 2 sold 152,700 units.

Among handhelds, the Nintendo DS sold 766,500 units up from 633,500 in May, while the Sony PSP sold 163,500 units up from 100,400.

Sales of videogame hardware, software and accessories dropped to $863.3 million in May from $1.2 billion in May of 2008.

Hardware sales declined 30 percent to $302.5 million and software sales were off 17 percent to $448.9 million. Sales of accessories were 25 percent less at $112 million.

Anita Frazier

"May is typically one of the lowest revenue-generating months in any given year for the industry in general," said NPD analyst Anita Frazier. "The dollar sales decline was exacerbated by a decline in average retail prices for almost all of the categories."

"Every category declined versus a year ago with the exception of portable hardware sales which was bolstered by the continued strong sales of the Nintendo DS including both the DSi and the Lite," she said.

Nintendo’s Wii remained the most popular selling game platform in May with sales of 289,500 units followed by Microsoft’s Xbox 360 with sales of 175,000 units, Sony’s PlayStation 3 sold 131,000 units and PlayStation 2had sales of 117,000 units.

The top-selling game in may was "UFC 2009 Undisputed" with sales of 679,600 units for the Xbox 360 and 334,400 units for the PS3.

"Looking ahead to June, there are some promising games coming out this month between Sims 3 (PC), Prototype, Red Faction, Virtua Tennis, Ghostbusters, Transformers and Tiger Woods just to name a few," Frazier said.

CD purchasing feel 26 percent and paid digital downloads dropped 13 percent compared to the previous year.  With paid digital downloads, 32 percent of teens purchasing less digital music said they were unhappy with the music that was available for purchase and 23 percent were satisfied were satisfied with the digital music they already owned.

The decrease in music purchases was matched by a downturn in the quantity of tracks downloaded from peer-to-peer (P2P) networks, which feel 6 percent in 2008. The number of teens borrowing music to rip to a computer or burn to a CD fell by 28 percent.

Russ Crupnick

"While we expected to see the continued decline in CD purchasing among teens in NPD’s music tracking surveys, it was surprising to see that fewer teens downloaded music from P2P sites or borrowed them from friends," said Russ Crupnick, entertainment industry analyst for The NPD Group.

"These declines could be happening due to a lack of excitement among teens about the music available, but it could also reflect a larger shift in the ways teens interact with music, given that so much music is now available whenever and wherever they want it."

NPD’s music tracking surveys noted sharp jumps in teen’s usage of online listening sources and satellite radio in 2008. More than half of teens (52%) listened to online radio in 2008, compared to just 34 percent in 2007. Downloading or listening to music on social networks increased from 26 percent in 2007 to 46 percent in 2008.

"The music industry still hasn’t recovered from declining CD sales, and now they are being challenged anew by slowing digital sales among teens," Crupnick continued.

"Perhaps the next wave for teens comes when just listening to music replaces purchasing actual files, which might end up creating new revenue streams, such as brand- and ad-supported music. It might also put a premium on selling downloads, merchandise, and show tickets directly to teen fans."

In comparison, 55 percent subscribe to newspapers or magazines, and 80 percent subscribe to premium television services such as cable, satellite or fiber optic.

Russ Crupnick
NPD Group

"Despite the recession, there are dedicated consumers who remain committed to premium entertainment experiences," said Russ Crupnick, entertainment industry analyst for The NPD Group.

"For just a few dollars a month consumers can get a vastly expanded library of movies, music or gaming options; and that represents real value, especially as many consumers are economizing by spending more time at home."

NPD’s "Entertainment Trends in America" tracking surveys found that 18 percent of Web-enabled households currently subscribe to a premium DVD service, such as Blockbuster Online or Netflix; 6 percent subscribe to an online music service, like Rhapsody or eMusic; 12 percent subscribe to satellite radio; and 12 percent subscribe to a premium gaming service, such as Xbox Live.

"These services have been reporting aggressive subscriber growth in the face of economic stress," said Crupnick.

"Entertainment companies need to keep an eye on whether subscriptions begin to cannibalize purchases of packaged media, or if there are additional declines in moviegoing and other away-from-home entertainment."
 

In January, consumers purchased $445.4 million in video game hardware, a 17 percent year -over-year increase, proof that the video game industry is doing well despite the recession.

"Even in these tough economic times, the fact that total sales were able to realize a 13 percent increase in revenue (compared to Jan’07) speaks to the continued strength of video games as one of the leading entertainment industries in the U.S.," said Anita Frazier, analyst NPD.

Anita Frazier

The Wii was the top selling console with 679,000 units, followed by DS with 510,000 units. The Xbox 360 sold 309,000 units and the PlayStation 3 sold 203,000 units.

Nintendo landed the top three video game spots for January, overtaking the Xbox 360, which is usually at the top.

Top Ten Video Games for January 2009 (ranked by total U.S. units sold)
1. Wii Fit w/Balance Board – Wii- Nintendo of America – 777,000
2. Play w/ Wii Remote – Wii – Nintendo of America – 415,000
3. Mario Kart – Wii – Nintendo of America – 292,000
4. Left 4 Dead- Xbox 360 – EA – 243,000
5. Call of Duty: World at War – Xbox 360 – Activision – 235,000
6. Skate 2 – Xbox 360 – EA – 199,000
7. Guitar Hero World Tour – Wii – Activision – 155,000
8. New Super Mario Bros – DS – Nintendo of America – 135,000
9. Mario Kart – DS- Nintendo of America – 132,000
10. Lord of the Rings: Conquest – PS3- EA – 113,000
 

"Only two of the top 10 games this month were new releases. The continued strength of games that have been in the market for some time clues us into just how many new consumers are coming into the industry," said Frazier.

"This broadening of the audience for gaming will help buoy the industry through these tough economic times, provided they have enough compelling content to keep them interested."

Only 20 percent of mobile phone users prefer to use their phones as an all-in-one multimedia device for music, videos, Web surfing and other activities beyond making phone calls.

NPD’s "Mobile Phone Usage Report" found that among the top wireless providers, Verizon Wireless customers are least likely to embrace their phone as an all-in-one multimedia device.

While most U.S. consumers are familiar with text messaging and the ability to change ringtones, 34 percent of mobile users do not know if their current phone’s memory could be expanded, 28 percent did not know if they could watch videos, and 12 percent did not know if they could access the Internet via Wi-Fi. Close to a quarter (23%) were not sure if their phone included GPS, while 21 percent did not know if their mobiles would play music.

The adoption of advanced mobile features shows a gap between the usage of these features and the increasing sell through of devices supporting these features.  NPD’s monthly Mobile Phone Track service found 71 percent of all mobiles purchased by consumers in the U.S. were capable of playing video, 60 percent had expandable memory, and 55 percent had GPS technology.

"Increasingly consumers are purchasing phones with advanced capabilities that go far beyond voice calling, but only those who take advantage of these features offer the best revenue potential for operator," said Ross Rubin, director of industry analysis for NPD.

"Operators and other handset retailers have an opportunity to educate customers as to the capabilities of their handsets in the wake of slower overall handset sales."

The overall drop off in music purchases includes CDs, digital music downloads, and P2P file sharing sites.

The amount of U.S. Internet users, age 13 and older, purchasing a CD in the prior month fell from 25 percent in Q3 2007 to 22 percent this year. NPD estimates that the volume of CDs purchased fell by 19 percent in Q3 compared to last year. The most significant declines in CD sales were among teens (down 34%) and among adults age 26 to 35 (down 36%). CD purchases by adults age 36 and older were more moderate with a 10 percent decline.

Digital downloads saw growth in the number of buyers, and the volume of songs sold in Q3. Fifteen percent of Internet users purchased music from online music stores, such as iTunes and AmazonMP3, which is an increase of 2 percent over last year and is about 2.8 million additional music -download customers. Legal music downloads were up 29 percent in Q3 with positive number for all age groups except those 50 and older.

"The continued growth in the customer base for paid digital downloads is positive, particularly for teens, but it’s counteracted by deepening softness in CD trends," said Russ Crupnick, entertainment industry analyst for NPD.

"Alternative distribution deals in mobile and social networking are important ways for the music industry to fill the gap left by the decline in traditional revenue streams."

The number of Internet users sharing music on P2P sites remained steady at 14 percent in Q3, but the volume of music shared via P2P sites increased by 23 percent, as P2P users reported downloading more files. Teens purchased 34 percent more digital downloads compared with last year.

"The industry has managed to constrain the number of people who are file sharing, but the expanded use of services such as Bit Torrent enable entrenched P2P users to download a growing number of files," said Crupnick.

Video gaming also has had a positive effect on the music industry. Twenty-two percent of music buyers and 35 percent of people under age 35 said they played a music-based video game, such as Rock Band or Guitar Hero, in the last three months. This has led to music gamers finding music and making digital or CD purchases.

"Even though gaming competes with music for the consumer’s entertainment wallet share, music-related games are evolving into an important source for music discovery that can have positive revenue implications for the recording industry," Crupnick said.