Here’s a fact that might sound a bit strange: CD sales are down, but music sales continue to grow. There is one logical explanation for that: iTunes, as almost half of the teenagers prefer to buy music online rather than on CD.

If in 2006 the CD sales decreased by 38%, the trend continued in 2007, reaching an estimated 48%, a report released by NPD on Tuesday shows. Wal-Mart Stores kept its position as the largest music retailer in U.S. last year, but that might not be the case this year.

As digital music becomes more and more popular each day, Apple could outrun Wal-Mart in becoming No. 1 this year, as the popularity of the iTunes online store increases, analysts say. As young people have already begun to put digital downloads at the top of their preferences, it is less likely that CD sales could stand a chance in the next period.

According to NPD estimations, music spending declined 10 percent, from $44 to$40 per capita among Internet users, while the number of CD consumers dropped by one million in 2007 alone. At the same time, P2P music sharing continues to become more and more popular among teens, the same report shows.

Illegal downloads of music maintained a high level in 2007, but at the same time, there were signs of improvement in legal digital downloads, which could place iTunes at the No.1 spot this year, ahead of Wal-Mart Stores Inc.

“The continued growth in legal download sites is encouraging, yet the industry struggles to improve the value of each digital customer,” Russ Crupnick, entertainment industry analyst for NPD Group said according to the report. “With so many baby boomers and gen-Xers entering the market, there are certainly opportunities to sell more digital albums, promote older catalog titles, or create bundles that will raise revenues. In the near term that’s going to be the best means available to narrow the gap on dwindling CD revenues.”