Rumor: iCloud service to be initially free for certain customers, then available for $25/year

You can have it for free…for a while.

Per the Los Angeles Times, music industry insiders allege that Apple’s forthcoming iCloud service will have an initial free period for iTunes Music Store customers, but the company plans to eventually charge a US$25 a year subscription fee.

The newspaper confirmed on Thursday earlier reports that Apple had finalized contracts with the last of the major music labels, according to sources familiar with the negotiations.

“The service initially will be offered for a free period to people who buy music from Apple’s iTunes digital download store,” the report read. “The company plans to eventually charge a subscription fee, about US$25 a year, for the service.”

It is unclear, though, whether the report refers to the cost of the whole iCloud service or just the streaming music feature. By comparison, MobileMe, Apple’s current online storage and sharing solution, costs US$99 a year.

In addition to charging a subscription fee, “Apple would also sell advertising around its iCloud service,” the report noted, without providing details on why Apple would both charge for the service and sell advertising. Sources also indicated that Apple “envisions the service to be used for movies, TV shows and other digital content sold through iTunes.”

Sources stated on Wednesday that Apple could offer general iCloud features free to Mac users who make the upgrade to Mac OS X 10.7 (“Lion”), though a music streaming service would likely come with a price tag. Music industry executives have previously suggested that Apple’s cloud-based music service could be free at first, but would eventually cost money.

According to sources knowledgeable with the terms of Apple’s agreements with the music labels claim 70% of the revenue from iCloud’s music service will go to the labels and 12% will go to the publishers, leaving Apple with 18%, according to Thursday’s report.

However, those numbers contradict a report from CNet earlier on Thursday that alleged Apple would keep 30% of revenue and share 58% with the labels and 12% with publishers. That report also cited sources claiming Apple’s streaming music service won’t be available on Monday “but will be offered soon,” though it will reportedly store only music purchased from the iTunes.

Apple is set to unveil the service next Monday at the Worldwide Developers Conference keynote in San Francisco, alongside a preview of Mac OS X 10.7 Lion and the introduction of iOS 5.

Stay tuned for additional details as they become available.