NEW YORK/LOS ANGELES (Reuters) - Apple Computer Inc. is in talks to buy the world's largest record company, Universal Music Group, from Vivendi Universal, a source close to the matter said on Friday, in a deal that could transform the music industry.

The deal with Universal Music, believed to be worth as much as $6 billion, would also reinvent Apple. The personal computer maker, which is suffering from weak demand, would get a foothold in new markets for its PCs, software and the iPod digital music player, analysts said.

But the news did raise doubts among Apple shareholders, many of whom had bought the stock because of its $4.4 billion cash war chest. Apple shares fell 8 percent.

The Los Angeles Times first reported the talks in an article on Friday that said Apple could offer $5 billion to $6 billion for Universal Music, which is home to artists like Jay-Z and U2, before Vivendi's April 29 board meeting.

Vivendi and Apple spokeswomen declined to comment.

The negotiations come against the backdrop of a severe slump in the music business, as the popularity of free

music-sharing services and competition with other entertainment outlets cut into profits.

The technology and music industries have been at loggerheads over the ability of consumers to use computers to swap songs for free on online services such as Kazaa.

But the combination of Apple, which made its name by marketing consumer-friendly PCs, with the world's largest music company, could help bridge the gap between the two industries and usher in a new era of digital music, analysts say.

HIT THE GROUND RUNNING

"This is about as close you can get to someone really kick-starting this stuff," said Forrester Research analyst Josh Bernoff.

Music companies have been desperately seeking a profitable way to sell music over the Web but faced challenges over how to accommodate artists and protect digital rights.

Technology companies would not be as encumbered. Apple, for example, has its own operating system, hardware and digital music devices that would let them hit the ground running once they can tap a music catalog.

Universal's parent, Vivendi Universal, for its part, is seeking to cut its debt and regain investor credibility by selling assets, including its U.S. entertainment assets, known collectively as Vivendi Universal Entertainment.

Although Universal's operating profit is down 23 percent, it still dominates the industry, accounting for about one-quarter of all CD sales. Sources close to Vivendi have said the French company had been moving away from selling the music business, given the poor state of the music industry.

But a person familiar with the matter said that, while selling the business may not have been at the forefront of its plans, Vivendi's board would likely entertain an offer it thought was serious.

In a related development, billionaire oilman Marvin Davis said he would drop his bid to acquire Vivendi's U.S. entertainment assets if it sells Universal Music to Apple, a source familiar with the situation said Friday.

Davis, who once owned the 20th Century Fox film studio, launched a $15 billion bid for Vivendi Universal Entertainment last November, vowing that he could put together the financing for the deal and was not simply "kicking the tires," as he has been accused of doing in past.

IS JOBS THE MAN TO DO IT?

Apple Chief Executive Officer Steve Jobs has long been interested in the entertainment business. He is also chairman of Pixar Animation Studios Inc., purveyor of such blockbusters as "Monsters Inc." and "Toy Story."

Several industry insiders said the music industry is ripe for a fresh perspective from entrepreneurs like Jobs and Andy Lack, the NBC executive recently tapped to run Sony Music.

"It's a tremendous undertaking," said Richard Gay, vice president in Booz Allen's media and entertainment group. "It's going to take a real risk taker to save the music business."

If a deal happens, it could run into some of the cultural issues that hobbled once-heralded and now widely criticized AOL Time Warner merger. Analysts said the widely different culture between Apple and Universal could be an issue.

Raymond James analyst Phil Leigh said in a research note that an Apple deal would double the computer company's revenue and remove any doubt it intends to become a trend-setter in online music distribution.

If the deal does go through, analysts said it could open the door for more collaboration between technology and music companies, even if it does not spark a wave of mergers.

According to sources familiar with the situation, Microsoft, for example, has had discussions with EMI Group Plc as recently as last year to buy the world's third largest label, although the talks came to nothing.

Sony, the world's largest consumer electronics company and a major player in movies and music, could also play a large role in the transformation.

"Microsoft is intriguing but their forays into the content business have in general been costly and you can't call any of them major successes," Bernoff said. "Sony's intriguing but they already have a music company. European regulators have been resistant allowing these companies to merge."

Apple shares closed down $1.17 at $13.20 while Vivendi shares fell 8 cents at $13.82 in New York trade. (additional reporting by Merissa Marr and Bernhard Warner, Allison Tudor in London and Caroline Humer in New York)