EMI Group and online music sellers including Microsoft halted talks aimed at removing copyright protection from songs because they couldn't agree on the size of an advance payment, people briefed on the offer said.

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EMI Group and online music sellers including Microsoft halted talks aimed at removing copyright protection from songs because they couldn’t agree on the size of an advance payment, people briefed on the offer said.

EMI, the third-largest music company, demanded an upfront payment to compensate for its risk in releasing the music without software that prevents copying, the people said. The retailers countered with a lower offer, which EMI rejected, and negotiations are now on hold, the people said.

Discussions included Microsoft, Apple, RealNetworks, Yahoo! and Amazon.com, and a deal with some of them seemed close two weeks ago, the people said. CD sales slid last year, giving the idea traction as record companies look to reverse their fortunes. An announcement with EMI had been planned for as early as Feb. 9, one of the people said.

“It’s a setback,” Harold Vogel, an independent media analyst in New York, said in an interview. “That this industry fights every change tooth-and-nail is not helping reverse the tide.”

Talks have been further complicated by Warner Music’s efforts to buy EMI. Warner Chief Executive Officer Edgar Bronfman opposes offering music without the copyright software.

EMI spokeswoman Jeanne Meyer declined to comment, as did Microsoft’s Denise Gocke, Apple’s Natalie Kerris, Amazon’s Sean Sundwall, Yahoo’s Carrie Davis and RealNetworks’s Bill Hankes. Napster spokeswoman Becky Farina said executives weren’t available for comment.

The music industry is under pressure from retailers such as Apple’s iTunes and Napster to free music from so-called digital rights management software that limits use of songs.

EMI, whose recording artists include Norah Jones and Keith Urban, had resisted the calls on concern revenue would be hurt. Retailers argue sales may rise because files would be compatible with a variety of players.

A deal would make EMI the first of the four top music companies to offer digital tracks without the software. EMI’s delay may put off an industrywide shift because music companies are wary of being the first to take the step, the people said. If EMI did it, the rest will be pressured to follow, they said.

The upfront payment demanded by EMI would come on top of the per-song charge that retailers pay, said the people, who asked to be anonymous because the offer is confidential. The new fee would make it less profitable for retailers unless they raise prices. The people wouldn’t say how much EMI wants for the advance payment.

Apple CEO Steve Jobs, whose iTunes is the most popular Internet music seller, on Feb. 6 penned an open letter pleading for copy-protection free music. His company wasn’t initially involved in the talks with EMI and was added after the letter, which was published on Apple’s Web site, one of the people said.

Two days after Jobs posted his letter, Warner’s Bronfman told analysts the argument lacked “logic or merit.” Warner, the fourth-largest record company, said Feb. 20 it made an approach to EMI on Jan. 24.

EMI, which trails Universal Music Group and Sony BMG Music Entertainment among record companies, on Feb. 14 cut its revenue and profit forecasts for the second time this year as music sales slump in the U.S.

“Ultimately the industry will have to do go down this road,” Vogel said. “I would have thought the industry would have been further along at this point.”

“Interoperability issues are substantially slowing the growth of legal digital distribution and the four major labels are the only ones in a position to change this,” Napster CEO Chris Gorog said this month.

Yahoo! is in talks with record labels to sell unprotected digital music by year’s end, David Goldberg, general manager and vice president of Yahoo! Music, said this month. He declined to comment on specific discussions with music labels.

Rob Glaser, CEO of Seattle-based RealNetworks, said this month that the four largest music companies are “receptive” to selling music online without copy-protection software and will begin doing so within the next year or two.

EMI traces its history to the earliest days of recorded music, and became known as Electric and Musical Industries in 1931. During the 1950s EMI released Elvis Presley’s first records outside the U.S. and bought Capitol Records, gaining Frank Sinatra, Nat “King” Cole and Peggy Lee.

Bloomberg News reporters Don Jeffrey in New York and Jonathan Thaw and Connie Guglielmo in San Francisco contribted to this report.