Universal snubs iTunes deal, source says

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LONDON -- Universal Music Group has refused to strike a long-term licensing arrangement with Apple's iTunes Music Store and will instead opt for "flexible," interim agreements, a source close to negotiations told Billboard.

In recent days, the music major is understood to have declined to sign a two-year pact, according to the source, but will enter into month-to-month deals carrying the same terms.

"UMG wants greater flexibility," the source said. "If someone comes along with a new service or device and wants an exclusive at launch for three months for 10% of UMG's top line product, UMG couldn't do that if they signed (a two-year) Apple deal."

The market-leading music firm's decision to break ranks could potentially derail Apple's dominance of the online music market. Apple's iTunes generates more than 70% of all online music sales worldwide.

UMG's tough new stance comes as the record industry awaits the arrival of Amazon's download service, which is expected to emerge as a legitimate contender to iTunes' market dominance.

And the development comes just days after Apple released to the public last weekend its iPhone, which some industry observers anticipate will beef up the computer giant's presence in the mobile music market.

"UMG doesn't have long-term agreements with other retailers. So why Apple?" the source said.

A spokesman for UMG declined comment.

Apple Inc. CEO Steve Jobs ruffled feathers in the music industry Feb. 6 when he called on the major labels to abandon digital rights management. "DRMs haven't worked, and may never work, to halt music piracy," Jobs wrote in an open letter.

Some industry executives saw Jobs' comments as an attempt to deflect the DRM debate from Apple, which has faced increasing pressure in Europe to make its iPod/iTunes ecosystem interoperable with third parties.

An Apple spokesman did not respond to requests for comment.
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