Apple seen having upper hand in music negotiations

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The music companies also want to improve their margins on the wholesale pricing of digital songs. There has even been talk of getting a cut of sales of iPods themselves, or future devices such as the highly anticipated iPhone set for availability in June.

But analysts see that as unlikely, with EMI's deal probably pushing the issue of dropping digital rights management to the top of the agenda.

In February, Apple Chief Executive Steve Jobs urged all four majors to drop DRM, a move cynical observers said was sparked by the pressure his company faces from European regulators to open the iPod/iTunes family to other technology platforms.

The labels were already beholden to Apple, which has more than 80 percent of all digital music download sales in the United States. Apple said last week it has sold 100 million iPods since it introduced the product in 2001.

Some music industry observers say the issue is not DRM but interoperability. Apple's proprietary FairPlay protection technology prevents the playing of songs downloaded from iTunes on other digital players besides the iPod.

"EMI rushed into that deal," says Ted Cohen, who left a senior position at EMI last year to set up consulting firm TAG Strategic. "It would have been better to put pressure on Apple to open up FairPlay to make it interoperable across multiple platforms."

The other three music companies say publicly that they are only experimenting with dropping DRM, but privately, executives accept that following EMI's move it is only a matter of time. The industry will be watching Universal Music, which dominates with a market share of about 30 percent.

"If Universal goes, then everyone has to follow," said the first music executive. Some media reports and analysts say a move by Universal to drop DRM may be imminent through a partnership with online retailer Amazon.com Inc. (AMZN.O) that could be announced in May.