Apple in 'advanced' acquisition talks with Lala

Update 1:32 p.m. PST to include some of the reasons sources say Apple is interested in Lala.

Apple is close to acquiring digital-music service Lala, according to two sources with knowledge of the discussions.

Talks are very advanced, the sources said Friday. One said that the sides have already agreed on terms and have only to sign a final agreement. (Update 6:21 p.m. PST: The New York Times and Wall Street Journal are reporting that Apple and Lala have struck a deal.)

Steve Dowling, Apple's spokesman, said the company doesn't comment on rumors and speculation. A representative from Lala was not immediately available for comment.

Lala is a streaming-music site that sells songs for 10 cents apiece and enables users to store their music libraries on the company's servers. But it has gone through multiple iterations and was once known as a CD-swapping service before reinventing itself as a streaming site.

Exactly what Apple intends to do with Lala remains unclear. Right now, Apple is the largest music store online or offline and has made more money than any other music service by selling downloads. CEO Steve Jobs could start a streaming service, but my sources told me Friday that Apple managers are very interested in working with Lala's engineers, who have come up with "a payment and fulfillment system that could save Apple millions of dollars a year."

In addition, Apple wants Lala's founder Bill Nguyen to come over as part of the acquisition, another source said.

Nguyen is a well-known and respected Silicon Valley entrepreneur who has tried for years to find a music service that is both popular with users (meaning cheap and easy to use) while also generating profits.

According to music sources, the affable Nguyen is also considered my label insiders as one of the more popular figures from the tech sector. Nguyen has typically focused on generating profits as much as whiz-bang technology, which is not always the case with many of his competitors, the sources said.

That said, Lala is not believed to be profitable.

If the deal goes through, it would be the third acquisition of a digital-music site in recent months. MySpace acquired iLike in August and sources said last month that MySpace purchased Imeem.

If Apple is planning some kind of streaming service, the public has shown an appetite for streams that are free of charge and ad-supported.

Many music fans have also clamored for a better way to store music. Right now, most music libraries can be found on an owner's computer hard drive, which can malfunction and potentially destroy thousands of songs. Lala enables users to store songs on the company's servers and access them from Web-enabled devices.