UPDATE 2-HBO seen selling shows on Apple's iTunes-sources

(Adds another source, more background)

By Kenneth Li

NEW YORK, May 12 (Reuters) - Time Warner Inc's (TWX.N) HBO cable network is expected to start selling shows on Apple Inc's (AAPL.O) iTunes digital entertainment service, with flexible pricing, sources familiar with the discussions said on Monday.

Episodes of some HBO shows are likely to be sold at the standard price of $1.99 per episode or higher, these sources said, marking the first time Apple has agreed to selling television shows at different prices in the United States.

Although some global iTunes stores, including Japan, already sell songs at different prices, Apple has resisted offering music or television shows at different prices for the sake of simplicity for consumers.

The deal could be announced as early as tomorrow, one of the sources said.

But studio and music company executives have pushed for variable pricing, such as the ability to sell some content at lower prices and new releases at higher prices, which they believe would improve sales from its older catalogs.

Apple's pricing structure also was part of the reason why General Electric's (GE.N) NBC Universal decided last year to pull its shows from iTunes.

Since then, NBC has made some shows available for streaming on Apple's iPhone as well made some available for sale on iTunes's U.K. store.

For HBO -- home to hit series like "The Sopranos" and "Sex and the City" -- the move marks the first time it has made its shows available for sale in electronic form. It is currently testing a broadband service for subscribers in Wisconsin, which streams episodes of shows shortly after their first airing.

HBO plans to make some of the shows available on iTunes when its sells them on DVD, after the initial airing of the entire season, one source said, preserving its relationship with subscribers and cable operators who pay HBO a fee for every new subscriber.

Other broadcast and cable networks make their shows available as early as the next day after broadcast.

At launch, HBO will likely offer mostly shows from its archives, one source said.

HBO declined comment. An Apple representative was not immediately reachable.

The news was first reported by Portfolio.com. (Reporting by Kenneth Li; editing by Jeffrey Benkoe and Carol Bishopric)