What Happens When Google and Apple Stream Music?

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It looks like Google and Apple might launch their own subscription streaming music services.

Fortune published an exclusive this week that Google will launch a subscription music service later this year, a service based on YouTube and similar in functionality to Spotify.

That move would place Google into direct competition with Muve, Pandora, Spotify, Soundcloud and Rdio.

More interestingly, it also may pit Google once again against its main competitor in the mobile platform space: Apple is rumored to be in talks with Beats about a collaboration on its own streaming music, called Daisy.

The report on Google’s YouTube streaming music service is somewhat surprising because of a similar music service rumored to be coming from Google’s Google Play store.

In both cases a monthly subscription fee unlocks more features. The assumption for YouTube is that advertising goes away when you pay.

The best scenario would be that the two services are united: You pay one subscription and get streaming from both services, although there’s no indication that this will be the case. That would be a killer service, though, because you could listen to streaming music on your mobile device — audio only — and then do the same thing on YouTube, but also get the music videos.

Google already provides a link on some YouTube videos to buy the songs on Google Play, and also on iTunes and Amazon .

The company also introduced a new Google+-based sign-on program that enables developers to use Google+-based identity to let users sign in. Interestingly, the system enables new capabilities in Google+ that would let content creators spread viral music and videos that can be downloaded and purchased using a button on the post itself.

It might seem as if Apple is the leader in online music because of its iTunes music service. In fact, Google’s YouTube is by far the world’s largest repository of digital entertainment, including music.

While old-fashioned radio is still the number-one way people discover music, two-thirds of US teenagers say YouTube is their most important source of music.

YouTube is becoming increasingly important for the music industry. Last month, Billboard started taking YouTube activity into account in measuring the success of songs. The move backfired, however, because the “Harlem Shake” video went straight to the top. (The “Harlem Shake” song was number-one because of the thousands of homemade videos showing people dancing around idiotically, not because of the music or the artist.)

Part of the reason for Google’s dominance in music, of course, is that it’s free.

It’s not clear how many music fans will pay for something they had been getting for free or how music labels and independent artists will be compensated, nor is it clear whether such a move could be profitable for Google or content creators.

YouTube’s channel partners are already complaining about what they consider inadequate money for their efforts.

The kinds of people who pay for a subscription (people with jobs willing to pay for things) are also the best targets for advertising, so a subscription service might cut ad revenue for Google by reducing the value of advertising.

In response, Google may decide to make YouTube advertising much more invasive, both making up for lost revenue and also further incentivizing subscriptions. Google recently started testing new, so-called “pre-roll” video options for YouTube that lets users choose which ad they’d like to watch before being allowed to watch the video they selected.

In such an ad program, common on Hulu, pre-roll ads are much longer than they currently tend to be on YouTube.

Big Opportunities

It seems to me that Google has an advantage over Apple in the potential future for streaming content in general.

For example, I’d love to see a subscription service for TV shows, how-to videos, comedy sketches, news programs and other categories. This would be especially powerful if content creators could be profitably compensated for their productions.

Over the weekend, before the rumors hit, I called for Google to embrace audio and video podcasting in a big way, uniting YouTube with Google+ and the Android Play Store, giving content creators a one-stop-shop for streamable, downloadable and subscribable content.

Whether Google calls all this “podcasting” as I do, the fact remains that the awesome repository of content in general available on YouTube — music and other content — is almost infinitely monetizable, whether its through subscriptions, advertising or through some other future process. The trick will be how to police illegitimate and inappropriate content, and also make sure that content creators can make a living through whatever subscription or advertising-based schemes Google comes up with.

While Apple has iTunes, and a lot of music lover-customers it can convert over to a streaming service, Google has an even bigger pool of mobile users with Android, a much larger repository of digital content, plus a killer social network for social sharing and discovery — and all of this has yet to be exploited in any meaningful way.

Google’s entry into the streaming music business is probably just the beginning of unimaginable new ways to discover, share, listen to and pay for music.