Apple May Alter Core iTunes Approach

Updated from 2:22 p.m. EDT

SAN FRANCISCO -- Apple(AAPL) may be singing another tune.

The company is reportedly in talks with big music companies to offer customers unlimited access to its iTunes music library through either a subscription or a premium-priced iPod, according to a report in the Financial Times.

The move would be a big departure from Apple's current model. Since the 2001 launch of the iTunes store, Apple has chosen to offer its users music downloads for 99 cents a song instead of an unlimited access plan, even as it introduced new models of the iPod to keep consumers excited about the device.

The company has had to maintain this pace in the face of growing competition from other music stores and the slowdown in iPod sales.

Apple May Offer Unlimited Downloads, Reports Say

By offering an unlimited music bundle with the iPod, Apple would be making a move to stave off challengers. In November, Universal Music announced Total Music, a plan to allow device manufacturers to offer unlimited music subscription with their devices.

A month later, Nokia(NOK) hopped on board with its own "Comes with Music" subscription service that includes music from Universal and other labels.

Nokia customers can buy a device with a year of unlimited access to songs. If they choose to not renew their subscription at the end of the year, they can also keep all their music without having to worry about it disappearing.

Apple could do benefit from a similar strategy, says Phil Leigh, senior analyst, with market research firm Inside Digital Media. "It would stimulate demand for the iPods," says Leigh.

Apple's iPod sales grew just 5% last quarter compared with 50% a year ago. U.S. sales for the device were nearly flat.

Meanwhile, the company has been facing increasing competition from rivals to its iTunes store such as Amazon.com(AMZN). Last year, Apple moved to offer some music on iTunes, free of digitals right management (DRM), from some labels such as EMI.

But Amazon.com launched its own DRM-free music store which now includes music from not just EMI but also Universal and Warner.

Universal Music rebuffed a long-term contract with iTunes and instead is offering its DRM-free music through RealNetworks'(RNWK) Rhapsody service and Amazon.com, among others.

"Many consumers are moving to Amazon.com to get their music," says Leigh. "Especially as labels have singled out iTunes as the one place they won't sell their DRM-free music."

Apple is reportedly still thrashing out a revenue-sharing agreement with music labels. The company is said to be offering $20 a device to its partners, a fraction of the $80 a device that Nokia offers its partners.

Apple may need to get a unlimited access deal done soon to counter the possibility of a toll on the sales of Apple products as a result of the slowdown in the U.S. economy. That's because its existing strategy of refreshes and upgrades to its iPod line alone may not be enough to lure consumers.