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Why Google and the Music Industry Want a YouTube Hit

A forthcoming YouTube music service could be a turning point in the fraught relationship between Google and the major record labels over how consumers get access to digital music and how music creators get paid.

The new subscription service, expected to be launched later this quarter, is designed to offer record companies a way to generate more revenue from the massive amount of copyrighted music on YouTube. The offering also could enable Google to make a dent in the fast-growing digital music market, where the Web-search giant’s early efforts, including a Google Play streaming service initially made for Android phones, have been a disappointment.

Success is hardly guaranteed. The digital music business is crowded and competitive, and it’s not at all clear that the massive audience that comes to YouTube mainly for free videos will be interested in purchasing music.

It took the better part of a year for Google and the record labels to reach an agreement on the new YouTube music service, which is among the site’s top priorities this year, along with creating a walled-off version of YouTube for children. At one point during the tense negotiations, some music industry executives threatened to exercise a kind of “nuclear option” in which they would refuse to renew an existing licensing deal and instead seek the takedown of millions of YouTube videos.

In the end, though, the music labels saw little choice but to work with Google as they desperately seek new sources of revenue. Previously undisclosed details on Google’s music-related revenue show how far the company has to go to be a significant player in music sales.

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Lingering in the background was the music industry’s ire over Google’s refusal to do more to prevent its search engine from pointing to pirate music sites when people enter terms like “mp3.” Over the past three years the music industry has filed more than 100 million “take-down notices” to Google.