Today Dynamite Records, a fixture in Northampton, MA for more than 27 years shut its doors. Probably doesn't matter to most of my readers, but consider this news against the backdrop of figures released this week by the NPD Group indicating that iTunes controls 25 percent of all US music sales in the US. What's more, they control 69 percent of all online music sales. Meanwhile, the news gets worse for the likes of Dynamite Records because the brick and mortar stores that sold the most CDs? WalMart and Best Buy.

CDs Still Dominate...For Now

Yet surprisingly, in spite of the bitching and moaning by record companies, CDs still accounted for 65 percent of overall music sales in the first half of this year. That was the good news says Russ Crupnick, vice president of entertainment industry analysis at NPD. The bad news is if the current trend continues, online sales will catch up to CD sales by the end of 2010.

"Many people are surprised that the CD is still the dominant music delivery format, given the attention to digital music and the shrinking retail footprint for physical products," Crupnick said "But with digital music sales growing at 15 to 20 percent, and CDs falling by an equal proportion, digital music sales will nearly equal CD sales by the end of 2010."

Ultimately, the format probably doesn't matter, but there is still a way to sell physical CDs that iTunes just can't touch.

It's All About Packaging

I have to admit that I buy most of my music online these days, but I don't always and what attracts me now to a CD is special packaging. Recently I was in--ahem--Best Buy and I came across a Led Zeppelin package. It included a booklet some unreleased live material and it was interesting enough to me that I bought it. This is the way that companies can sustain CD sales, but to do it, they really need to relax about the Internet and use it to their advantage.

Let Social Networking Work for You

But when it comes to the Internet, the general rule of thumb for record companies has been to be obstructionist and litigious, to carefully protect their products to the point of absurdity. In Lawrence Lessig's book, Remix, he tells the tale of a woman who made a video of her two year old dancing to a Prince song on the radio and posted it to YouTube. Prince's record company soon contacted her and issued her a take-down notice. In another incident, reported by David Meerman Scott, fans of Led Zeppelin posted low quality cell phone videos of the band's 2007 reunion concert in London, but instead of seeing this as a marketing opportunity, Warner Brothers saw it as a copyright violation and ordered YouTube to take these videos down.

Record companies need to stop seeing the Internet and social sites like YouTube as the enemy and start taking advantage of social networking to excite fans about bands they might have forgotten about, and get the word out about special promotions and packages that fans want to own.

Stop Being Stupid

Chances are that no matter what record companies do, they won't stop the tide of digital change any more than newspapers will. That ship has sailed, but if they stop stupid business practices such as treating their customers like they are enemies instead of valued resources, and they put the CDs together in interesting packages, they may salvage more CD sales than they think is possible now.

And who knows? Just as vinyl sales have made a comeback in recent years, maybe in a few years, people nostalgic for holding music in their hands instead of their iPods, might cause a CD spike too. It's possible, if record companies would just smarten up and stop being so defensive.