Apple in talks on free iTunes, paper says Buyers would pay premium for iPod or iPhone, paper says

IPOD24_83655.JPG When Apple features unknown, obscure bands in its iPod ads, the bands go on to sell tons of records, making Billboard charts and gaining respect and admiration across the world. Apple's mediawide influence has become so great, music industry experts have compared it with Oprah Winfrey's ability to create bestsellers through her Book Club. The ads are all over most Bay Area Bart Stations including the Powell Street station, located inside the Westfield Shopping Center between Market and Mission streets. Lance Iversen/The Chronicle (cq) SUBJECT 11/17/07,in SAN FRANCISCO Ran on: 02-28-2008 Sales of iPod players have flattened, but Apple says there are still buyers out there and the market has not been saturated. Ran on: 02-28-2008 less IPOD24_83655.JPG When Apple features unknown, obscure bands in its iPod ads, the bands go on to sell tons of records, making Billboard charts and gaining respect and admiration across the world. Apple's ... more Photo: Lance Iversen Photo: Lance Iversen Image 1 of / 1 Caption Close Apple in talks on free iTunes, paper says 1 / 1 Back to Gallery

Apple Inc. is reportedly in talks to offer free access to its iTunes music library to customers who pay extra for an iPod or iPhone.

The Cupertino technology company is discussing a deal with the major record labels, but the negotiations hinge on how Apple and the music companies would share the revenue, the Financial Times reported.

Representatives for Apple, EMI, Sony BMG and Warner Music declined to comment Wednesday. A spokesman for Universal Music Group did not return phone calls.

If the plan is realized, Apple could charge a premium for iPods and iPhones in return for permission to download unlimited songs for free from iTunes.

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Apple also is studying a plan, according to the paper, that would allow iPhone owners, who already are billed monthly for their cell phone services, to pay a regular subscription in exchange for unlimited access to its library, an arrangement that Apple CEO Steve Jobs has scoffed at in the past.

Apple's iTunes Store is the No. 2 music retailer in the United States behind Wal-Mart, according to the market research firm NPD, selling more tracks than Target, Best Buy and Amazon.com. The iPod also remains the most popular digital media player on the market, and the iPhone has quickly captured market share since its introduction last year.

At the same time, the number of iPods sold during the most recent quarter was flat, and Wall Street has expressed concern that the iPod may be beginning to saturate the market, something that Apple executives have denied.

The rumored deal could be a move to encourage consumers to continue purchasing iPods, now that some of the music sold on iTunes can be played on any MP3 player, not just the iPod, said James McQuivey, an analyst with Forrester Research. Amazon.com and other online retailers also have started selling music not protected by copyright restrictions.

"The big shift in music right now is to MP3 files that are not connected to a particular device," McQuivey said. "That means any MP3 player is as good as any other MP3 player."

Apple does not make much of a profit from its iTunes music sales, Jobs has said. But it draws millions of dollars in revenues from iPod sales.

David Pakman, CEO of eMusic, a rival online music retailer, said he worries that Apple could take advantage of its monopoly in the digital music player market - the iPod commands about 85 percent of the market - and take over the online music retail market.

"If they were to bundle iTunes digital music downloads with every iPod, that would be anti-competitive behavior," he said.

Apple's rumored proposal is modeled after a deal that Nokia struck with Universal last year for its upcoming "comes with music" offer.

Nokia plans to sell "comes with music" cell phones later this year that will be accompanied by a one-year pass to its music library. Customers will be able to download as many tunes as they want and keep them after the year is up, said Bill Plummer, a Nokia vice president.

The songs, however, will be copyright-protected and will only play on the cell phone and a registered computer.