This Wired article profiles Apple's efforts to bring out of print music onto the iTunes Music Store.
The search for new songs/albums appears to be a collaborative one, with suggestions fielded from every source.
Of note, according to the article, record labels are estimated to have less than one third of their music currently available for sale due to distribution costs involved in physical CDs. Once offered in digital format, however, they could represent an additional revenue source for labels. Apple has already found some early success in recruiting such out-of-print music.
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