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According to several reports, the record company will only agree to a month-by-month deal rather than the two-year agreement tabled by Apple. The previous three-year deal expired last month.

Universal is thought to want a larger share of the proceeds from the digital music market. Last year it persuaded Microsoft to give it a cut of Zune revenues, although it is not known whether it asked for a piece of the iPod pie.

There is also speculation that the record company may seek exclusive deals to other store operators in an attempt to weaken what they see as Apple's too dominant position in the music market, a dominance they are concerned will only increase with the release of the iPhone.

Universal is the leading record company in the US, with around a third of all sales.

Apple declined to comment.