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Tuesday, January 31, 2006, 10:00 am PT (01:00 pm ET)

Napster in talks with Google over music service (Updated)

Internet giant Google is considering an extensive alliance with Napster, which could include an outright acquisition, as it plots its move into the digital music world, reports the New York Post.

Citing unnamed sources within the music industry, The Post says Google has been pushing to align with Napster — rather than build its own online music store — a sign that Google sees subscription services, rather than the individual download model that Apple's iTunes is built on, as the future of digital music.

Representatives for both Google and Napster declined to comment on rumors of an acquisition or an alignment.

However, last week a Napster spokeswoman told Reuters at an annual music industry conference in Cannes, France, "The company is not looking to be sold, the management is not looking to step out."

Napster, once synonymous with the pirating of music, also recently laid off 10 of its middle managers.

Robert Peck, an analyst at Bear Stearns, said in a recent research note that he believes Google is in the midst of creating its own iTunes competitor.

Peck predicted the company would roll out a music service in the next three to six months, saying such a move would be "logical" and that it "fits with Google's recent moves and its ultimate goal of organizing the world's information."

The research note, released last week, prompted Apple shares to slump 2.2 percent.

Update:

A Google spokesperson, in an emailed response to CBS MarketWatch this afternoon, said the search giant has "no plans to acquire Napster, nor do we have plans to develop a music store at this time."