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World's biggest label kneecaps iTunes store

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Universal Music Group (UMG) has dealt a serious blow to Apple's music ambitions by refusing to renew its contract with the iTunes Store.

The New York Times reports that the decision not to continue the annual contract was made by UMG executives last week.

It appears likely that Universal's repertory will disappear from the online store, unless the two parties can reach a new agreement. Embarrassingly for Apple, the removal of its catalogue will mean the loss of Apple poster child U2.

Owned by French media giant Vivendi, UMG is the world's biggest record label and claims to sell one album in four. It grew through a series of mergers, acquiring Polygram, A&M, Geffen, Motown, Island, and Verve.

Further details are scant, but the Times reports that Sony BMG recently renewed its annual contract with Apple.

Music executives have chafed at being forced to sell to iTunes at the one price set by Apple. They're also wary of the "cherrypicking" model, permitting single song downloads, that's destroyed the lucrative "bundle" of the album. They're keen to see more regular, service-based models succeed, even though these offer lower per-unit returns.

The four major labels have licensed their catalogues to Omnifone's global mobile music service MusicStation, set to launch in 30 territories over the coming months. MusicStation offers unlimited downloads for £1.99 a week, and provides the labels with a more predictable income stream than single song download stores. Apple isn't the only game in town, anymore.

Last year, UMG succeeded in extracting a $1 license fee from Microsoft for every Zune player sold. It's rumoured that Nokia declined a similar arrangement. If UMG gained a similar amount from Apple, that's still only around $40m a year. ®

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