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Universal Music Group notified Apple that it will not renew its annual contract to sell music through iTunes, according to executives briefed on the issue who asked for anonymity because negotiations between the companies are confidential.

Instead, Universal said that it would market music to Apple at will, a move that could allow Universal to remove its songs from the iTunes service on short notice if the two sides do not agree on pricing or other terms in the future, these executives said.

It appears Universal is aiming to regain some leverage. Sources claim that major record labels are discouraged and feel that Steve Jobs CEO of Apple has created a monopoly in the digital sector.

If Universal were to pull its catalog from iTunes, Mr. Jobs would lose access to record labels that collectively account for one out of every three new releases sold in the United States, according to Nielsen SoundScan data.

If Apple were to decide not to carry Universal’s recordings, the music company would likely sustain a serious blow: sales of digital music through iTunes and other sources accounted for more than 15 percent of Universal’s worldwide revenue in the first quarter, or more than $200 million.

Some industry observers have cautioned against taking on Mr. Jobs directly. “When your customers are iPod addicts, who are you striking back against?,” said Ken Hertz, an entertainment lawyer who represents artists like Beyoncé and the Black Eyed Peas. “The record companies now have to figure out how to stimulate competition without alienating Steve Jobs, and they need to do that while Steve Jobs still has an incentive to keep them at the table.”

Other music industry executives say the major labels must take a harder line with Apple at some point if they are to recalibrate the relationship. In particular, they say, it is unfair for Mr. Jobs to exert tight control over prices and other terms while profiting from the iPod. Mr. Jobs, in February, noted that less than 3 percent of the music on the average iPod was bought from iTunes, leading music executives to speculate that the devices in many instances are used to store pirated songs. (Of course, users can also fill their players with songs copied from their own CD collections.)

The final results will be interesting. This is a struggle for power and pricing.Â

(NYT)