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Apple Wrangles w/Music Co.‘s, Freebie iTunes a Maybe

Apple is in talks with the major music companies about the possibility of a new business model that would give customers free access to the entire iTunes library in exchange for a premium charge for iPod and iPhone users.

The deal is being held up by a dispute between Apple and the music companies over how much Apple would pay for access to the companies’ libraries, writes the Financial Times.

Later this year, Nokia plans to offer its users a “comes with music” deal similar to the one Apple is negotiating. Nokia reportedly pays nearly $80 per handset to its music partners, divided according to their share of the market, but Apple is said to be offering only about $20 per device.

Extensive research has shown that there is a big appetite among consumers for this kind of “all you can eat” model, with one executive familiar with the negotiations saying that consumers are willing to pay up to $100 for unlimited access to music for the lifetime of the device. Apple is also said to be considering a subscription model.

Apple, the No. 2 music retailer in the U.S. behind Wal-Mart, is thought to make relatively little from its iTunes store compared to its hardware sales. The number of iPods sold during the most recent quarter was flat, according to the San Francisco Chronicle, and Wall Street has expressed concern that the device may have begun to saturate the market. The iPod commands about 85 percent of the digital music player market.

Rival online music retailer eMusic worries that Apple could take advantage of its digital music player monopoly to take over the online music retail market. CEO David Pakman is quoted as saying, “If they were to bundle iTunes digital music downloads with every iPod, that would be anti-competitive behavior.”