July 2 (Bloomberg) -- Universal Music Group refused to renew a long-term contract to sell songs on Apple Inc.'s iTunes because it wants to remain flexible in negotiations with other retailers, a person with knowledge of the talks said.

Discussions between Universal and Apple broke off last week after Apple asked for a two-year licensing contract to replace a one-year deal that ended in June, said the person, who declined to be identified because the talks were confidential. Apple said today it is still negotiating with Universal.

ITunes will continue to sell music from Universal artists such as U2 and Gwen Stefani under an ``at will'' accord, without a contract, the person said. ITunes is the largest seller of downloaded music, with about 75 percent of the digital market, according to research firm NPD. Digital music accounted for about 16 percent of Universal's first-quarter sales, or $217.9 million.

``Apple's trying to maintain consistency across its products and pricing,'' David Card, an analyst with Jupiter Research in New York, said in an interview. ``Record labels would love to do some discriminatory pricing.''

The decision by Universal, a unit of Paris-based Vivendi SA, keeps the company open to negotiate exclusive digital music agreements with iTunes competitors, the person said. Amazon.com Inc., the world's biggest online retailer, plans to sell music downloads later this year.

The New York Times reported today that Universal won't renew its contract with Apple, citing executives briefed on the issue. The Wall Street Journal said Universal and Apple may not renew the agreement, citing a person familiar. Adam White, a spokesman for Universal, declined to comment.

Downloads vs. CDs

Shares of Vivendi lost 32 cents to 31.59 euros in Paris trading. They have advanced 6.7 percent this year. Shares of Apple fell 78 cents to $121.26 at 4 p.m. New York time on the Nasdaq Stock Market and have risen 43 percent this year.

Apple, based in Cupertino, California, recently became the third-largest seller of music after Wal-Mart Stores Inc. and Best Buy Co., NPD figures show.

``We are still negotiating with Universal,'' Apple spokesman Tom Neumayr said in an interview. ``Their music is still on iTunes.'' Reports that Universal has decided not to re-sign are ``just not true,'' he said.

Universal is among music companies banking on increased digital sales to make up for a decline in physical products such as compact discs. U.S. sales of CDs fell 20 percent this year through June 24 compared with a year earlier to 197.8 million units, market researcher Nielsen SoundScan said. Sales of digital albums rose 60 percent to 22.5 million.

Variable Pricing

Apple charges 99 cents for most songs on iTunes, and record companies have indicated they want more variable pricing online. They also have called for Apple to make its iPods compatible with other portable music devices.

``Variable pricing on singles would be a good thing, especially in the digital marketplace,'' said Card.

Apple Chief Executive Officer Steve Jobs in February asked the top four record companies to allow Apple to remove so-called digital rights management, or DRM, software from their online music. The labels required Apple to create a DRM system for iTunes to prevent illegal copying and distribution of the tracks.

Earlier this year EMI Group Plc became the only major label to allow retailers to sell its digital music without the copy protection. Apple charges $1.29 for songs without DRM.

Universal, based in Santa Monica, California, is set to release albums later this year from artists including Eminem, Mariah Carey, Andrea Bocelli, Diana Krall and 50 Cent.

To contact the reporter on this story: Don Jeffrey in New York at Djeffrey1@bloomberg.net.

Last Updated: July 2, 2007 17:35 EDT