Google music service faces big hurdles--and rivals

Wed Nov 16, 2011 3:07pm EST

The Google logo is seen on a door at the company's office in Tel Aviv January 26, 2011.  REUTERS/Baz Ratner

The Google logo is seen on a door at the company's office in Tel Aviv January 26, 2011.

Credit: Reuters/Baz Ratner

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(Reuters) - Social media and mobile communications will be the two big targets for Google Inc when it unveils a new music store for users on Wednesday, according to four people familiar with its plans.

But the giant web search company's new music partners have already labeled the service "unexciting." Music executives had been hoping for a more groundbreaking, fully functional cloud-based service; but after licensing talks broke down earlier this year, Google scaled back their ambitions.

Google's new service is primarily a music download store in a similar mold to Apple Inc's eight year-old iTunes Music Store, the biggest music retailer in the world, the sources said.

The world's largest search company is playing catch-up to its biggest rivals Apple, Amazon.com Inc and Facebook, who have all to varying degrees integrated music into their core online and mobile products.

But Google thinks there is still plenty to play for, according to people who have been close to its protracted negotiations with the music labels.

"Music is low-hanging fruit; it's another reason for people to buy its Android devices," said Mark Mulligan, an independent industry analyst.

Google has negotiated U.S. deals with three of the four major music companies: Vivendi SA's Universal Music Group; Sony Corp's Sony Music Entertainment; and EMI. It has also signed deals with the increasingly influential independent label group Merlin and London-based Beggar's Banquet label group, home to the biggest selling artist of the year, Adele.

Warner Music Group Corp has yet to reach a deal as it is in early stage talks, according to another person familiar with the matter.

Google had previously launched its unlicensed Music Beta service in May to indifferent reviews.

With so many heavyweight competitors, one analyst said that Google can't simply offer a me-too service if it hopes to have any success.

"Google can't just meet the bar set by Apple and Amazon. They're going to need to raise the bar and come up with some sort of differentiation, " said Michael Gartenberg, an analyst with industry research firm Gartner.

But he noted that Google's track record taking on the entrenched online media players is not impressive.

"Just look at their ebook effort ... People just don't think of Google as a major ebook player at this point. So it's hard to see how they're going to disrupt music away from Apple," he said.

One new feature that might help Google Music in its battle to distinguish itself from rivals is the ability of users of its social network Google+ to share songs they buy legally with other users. Another user will be able to listen to a song at least once, three people said.

Music executives said that even though music sales have struggled in recent years, music usage has never been more popular on different types of formats like social networks and mobile devices.

Facebook, the world's largest social network, unveiled a music tab in September through which music services like Spotify, Rdio and MOG enable Facebook users to share music. Amazon has also long been a major music retailer and has a music locker service.

"Having Facebook, Amazon, Apple and Google more deeply involved in music is a positive thing for us," said one executive who asked not to be named because negotiations are private.

Analysts say selling online music is unlikely to provide much of a lift to Google's revenue. But they say Google needs to be in the market to ensure that its mobile efforts based on Android can match offerings from competitors such as Apple and Amazon.

Without a music service, Android devices such as smartphones and tablets may not seem as attractive to consumers looking for a product that offers a seamless media experience.

And with music storage increasingly moving to remote Internet servers in "the cloud" rather than on the device itself, companies like Google and Apple have a way to keep users locked in to their respective mobile services, said BGC Partners analyst Colin Gillis.

"Everyone is using music and media as a jail. Ultimately this stuff is going to be stored in the cloud and it becomes harder and harder to switch systems," he said.

(Reporting by Yinka Adegoke in New York and Alexei Oreskovic in San Francisco, editing by Gerald E. McCormick)

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