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Thursday, April 12, 2007, 03:40 pm PT (06:40 pm ET)

Labels to ask Apple for music subscription model on iTunes - report

The world's largest music labels are expected to ask Apple to add a music subscription service to its iTunes Store as part of negotiations to renew their licensing agreements with the iPod maker, The Financial Times is reporting.

Those discussions are set to begin next week when Universal, the largest of the labels, sits down with Apple to pound out the terms of its renewal contract, the paper said. It cited "people close to the matter" as saying that Universal's competitors, Sony-BMG, Warner Music and EMI, have either commenced talks with Apple already or are poised to do so.

Weighing on the labels is an ongoing decline in sales of compact discs and the simultaneous proliferation of illegal music downloads through peer-to-peer file sharing networks.

Executives for the big four music companies reportedly believe a subscription service could prove more lucrative for them than Apple's current 99 cent a-la-carte and $9.99 album download model, as it would increase the consumption of music and allow them to reap monthly payments in addition to small licensing fees each time songs are played.

"The record industry, in particular, has long been frustrated that Apple has reaped most of the profits of the burgeoning online music market through sales of its iPod player," the Financial Times wrote in its report. "By contrast, they have earned only modest royalties from digital music sales because most of the songs on iPods and other devices result from illegal download."

For the most part, the labels have been forced to place their gripes aside and conform to terms set forth by Apple chief executive Steve Jobs, as iTunes dominates the legal download market in the U.S. with a more than 85 percent share.

One music executive familiar with the latest round of discussions with Apple told the Financial Times that music execs are "desperate for an iPod killer so that they won't be beholden to Steve Jobs."

Reports that Apple would adopt a subscription model on its iTunes Store have been making the rounds over the last two years but have never proved substantial. The most recent of those reports surfaced this past Wednesday, when CNN's Media Biz website cited an industry executive as saying he believed the iPod maker would oblige the music industry within the next six months.