"It will go down in history as a turning point for the music industry. This is landmark stuff. I can't overestimate it!" Thus said Apple's Steve Jobs in 2003 of the company's niche online music store, iTunes in 2003. It now holds 90% of the (legal – but that's another story) music download market share of what is an increasingly mainstream point-of-purchase format for recorded music.

As Irish music chain Golden Discs looks set to get an 11th-hour rescue, its plight highlights the death of the music store business model, but also its reincarnation as a digital entertainment business.

Zavvi in Ireland and the UK, the Virgin Megastores and Tower Records (unrelated to the Dublin company) chains in the US have all fallen prey to the digital download revolution and closed down.

In an interview with Playboy magazine back in 1985, Jobs also mused about the potential for some kind of all-in-one computer-phone. In less than a year, led by the iPhone, the mobile smartphone has come to dominate the digital revolution that music retail's future is locked into.

But even the multi-billion-download and billion-dollar earner iTunes is a loser in terms of the potential revenue of download entertainment. Research group Forrester says 95% of all music downloaded is acquired illegally and for free.

It wouldn't be unfair to say conventional music retailers have been caught napping, and it's been a 10-year nap. After all, the formerly illegal music download perpetrator, Napster is a decade old, yet the music industry as a whole is only now realising that suing students for illegally downloading music and scapegoating music piracy for its failure to keep up with market changes is not the way forward. These practices just created the space for the likes of iTunes to get on with the business selling music the new way and wiping the floor with the big record-shop players.

Surviving physical music retailers such as HMV have had to play catch-up and try to monetise the digital entertainment revolution, with phrases like 'stable door' and 'horse bolted' ringing in the air. HMV is in the third year of a business overhaul intended to tackle the threats of downloading and supermarket competition. The strategy included focussing on game and game console sales, online retailing and store revamps.

This is taking the 88-year-old business away from its core recorded music trade and towards other directions. It announced this month it is to trial digital cinemas, starting with a 200-seater luxury three-screen cinema in London's Wimbledon, and hopes to open more cinemas and café-bars above its stores. It has set up a new, more sophisticated loyalty scheme. It is also entering the live music market with promoter Mama Group. All significant departures from its recorded music base. The £50m-plus profit business had sales of €74m in Ireland for the last year, but sales were flat for the first quarter of this year.

Possibly HMV's smartest move has been to cosy up to the mobile-phone industry. It has announced a concession partnership this month with mobile phone giant Orange to sell mobile phones and services in the UK. With mobiles being at the forefront of where digital entertainment is going, this opens up all sorts of possibilities and learnings for HMV.

The big future profit areas for it are not music, but DVDs and video games – but both growth areas are likely to go the way of music and become increasingly accessible by download. Meanwhile, music buying via download increased by 36% in Europe last year and by 16% in the US, while CD purchases declined by 11% and 36% respectively in those markets, according to the Federation of Phonographic Industries.

So will this be Golden Discs' last brush with death, or indeed debt? With revenue having declined by a third, from €37.5m to €25m, between March 2006 and May of this year, the number of stores either owned or franchised has been steadily falling. Having also withdrawn from the Northern Ireland market, the 30-year-old business has struggled virtually throughout this decade.

When supplier Sony intervened and petitioned the High Court, it had debts approaching €12m.

Like it's bigger competitor, HMV, Golden Discs will need to change or die; expand its online business, look at new revenue possibilities such as installing instore music download stations and quickly diversify into other areas.

Twelve of the 17 Golden Disc stores are operating profitably, and rent as well as market conditions have been a big issue, according to its owners.

The loss of Golden Discs, following on the takeover of five Irish Zavvi stores by HMV would not just be a sad demise of an independent Irish business but would also mean an erosion of choice for consumers, leaving HMV to dominate without a main direct competitor. Golden Discs is considered to offer good competing value to customers.

If digital technology took the physical music retail industry by surprise, the one-year smartphone evolution must be leaving them reeling. Even some of the key online sellers have yet to introduce a mobile-friendly format.

Non-specialists such as Tesco are a further threat, with their economies-of-scale ability to undercut HMV, Golden Discs et al on DVDs, music and games, even if they can't offer the range of the dedicated entertainment names.

There's plenty more punishment to come for music/entertainment outlets. More than 90% of physical music stores have closed in just five years in Korea, where broadband levels are of phenomenal quality – treble the speed of the US, and downloading via mobile or PC has become main point of purchase.

The struggle to monetise TV, music, movie and gaming downloads will continue, with advertising or subscription services looking to be the most promising routes at present.