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The world's biggest music label has struck a blow against the dominance of iTunes in music downloading by refusing to sign up to a new two-year contract with Apple and threatening to move some of its biggest-selling artists on to a rival digital music service.
Universal Music has told Apple that it wants the "flexibility" to offer songs, albums and artists exclusively to other online music stores in order to generate competition to iTunes, which currently accounts for more than three-quarters of all digital music sold.
The main beneficiary could be the Finnish mobile phone maker Nokia.
It is planning to launch a rival to iTunes later this year, which it hopes will be the first popular music store from which songs can be downloaded directly to phone-cum-music players.
That would put it a step ahead of Apple's new iPhone, which can only be filled with music by connecting it to a computer. Universal Music, which is owned by the French company Vivendi, is home to a giant roster of stars including The Cardigans, Eminem, Amy Winehouse and U2, whose music is used to advertise Apple's iTunes and iPods.
Apple and Universal had been in talks about a third supply deal that would see all the record label's songs made available for sale on iTunes.
The first, three-year deal expired last year and was replaced by a single-year agreement that has also now expired. Universal has told Apple that it will continue to supply all its songs for the time being, but that it will now treat Apple in exactly the same way that it treats other bricks-and-mortar retailers, who do not have defined, long-term supply contracts.
Its defiance is the first significant defeat for Steve Jobs, Apple's chief executive, who has used the dominance of iTunes and the ubiquitous iPod to pressure record labels into supplying music on his terms.
Almost from the inception of iTunes four years ago, the labels have been furious at his refusal to allow songs to be sold at different prices, insisting on 99 cents apiece in the US and 79p in the UK.
As a consequence, they have been keen to back any service that looks like it could put a dent in iTunes' lead, and several new services are emerging.
Last August, Nokia paid $60m ($NZ76.75 million) for Loudeye Corp, an online retailer which sold songs mainly in Europe, and it has been developing the technology into a digital music store that it is expected to begin promoting this year.
It hopes such a store would spur sales of its latest handsets, in much the same way iTunes - from which Apple makes little profit - helps sales of the high-margin iPod.
- THE INDEPENDENT
