updated 01:26 pm EST, Tue March 5, 2013
Spotify competitor said to offer primarily free service, subscription options
Google is planning to launch a music streaming service by the end of this year, according to a report. The search giant will apparently be leveraging YouTube to offer a subscription music service to users, something that would place Google directly competing with other music services such as Spotify, Pandora, and Rdio.
Anonymous staff members at Google and music industry sources speaking to Fortune claimed that a YouTube-branded music service is planned, with the focus on a free service with subscriptions available for extra features such as the removal of advertisements. The YouTube service would also overlap with a Google-branded version, extending on the existing digital locker service provided through Google Play Music. Both services already have negotiating teams and operating units in place for their respective offerings.
At present, YouTube is considered to be one of the biggest music services globally, and has already made some headway in terms of music-based revenues. It is claimed that 25-percent of ad revenues for videos featuring Warner Music Group music is paid out in royalties to the record company, while the popular music channel Vevo and Content ID copyright tagging system also funnels royalties to copyright holders. One recent example saw South Korean artist PSY earn around $2 million from ads shown alongside the Gangnam Style music video.
The launch of a free, Google-backed, YouTube-branded music service could cause issues for established music services on the market. While Spotify has over four million paying subscribers, the fact that most of its revenues goes straight to record companies has forced it into negotiations to lower their payments. A free music service from YouTube could see an exodus of not only free users but also its subscriber base, though the threat of continued low revenues from Google could force record companies to give Spotify and similar services some slack in order to compete and protect their earnings.
Late last month, the International Federation of the Phonographic Industry posted its first year-on-year overall revenue growth since 1999. Revenues rose 0.3 percent, bringing the 2012 earnings to $16.5 billion, less than half of the $38 billion recorded in 1999.