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NEW YORK (Reuters) - Google Inc is in talks with music labels on plans for a download store and a digital song locker that would allow its mobile users to play songs wherever they are as it steps up its rivalry with Apple Inc, according to people familiar with the matter.
Google's Andy Rubin, the brains behind Google's Android mobile operating system, has been leading conversations with the labels about what a new Google music service would look like, according to these sources.
Rubin, Google's vice president of engineering, hopes to have the service up and running by Christmas, two of these people said.
The music industry hopes to benefit from a battle for control of the mobile phone and computer desktop between Apple and Google as both technology giants go head-to-head in a wide range of media and consumer technology areas including online TV and movies, mobile phones, software and even advertising.
Music is the latest area they are likely to compete in even though Apple had a major head-start on Google, with its 7-year dominance through iTunes Music Store, which accounts for 70 percent of all U.S. digital music sales.
Google has yet to sign any licensing deals with major labels, these people say, but it hasn't stopped the labels getting excited about the prospect of its entry to the business and what competition with iTunes could mean for the industry.
"Finally here's an entity with the reach, resources and wherewithal to take on iTunes as a formidable competitor by tying it into search and Android mobile platform," said a label executive who asked not to be identified. "What you'll have is a very powerful player in the market that's good for the music business."
Sales of Android-based phones have rocketed in recent months to 200,000 a day, according to Google, matching the hugely popular iPhones and iPads from Apple which are based on its iOS technology.
"There's no dearth of music available on a computer right now, but Google can still have an impact on the cellphone or any connected device," said Larry Kenswil, a former Universal Music executive who is a counsel at Loeb & Loeb.
The labels have been grateful to Apple for helping to kick-start digital music sales with iTunes in 2003, but they have been become increasingly concerned with the control the Cupertino, California company exerts over everything from song pricing to digital formats.
Music executives have long believed having other competing powerful digital music retailers could help expand the market.
While digital album sales are up 13 percent year-to-date from the year-ago period, sales of individual songs have held steady, according to Nielsen SoundScan.
"Google has a wealth of data, from YouTube, as well as from search, that can inform on what people are consuming and looking for music wise," said Simon Wheeler, head of digital at London-based independent music company Beggars Banquet.
But just being big won't be enough even for a company of Google's size and capabilities. Leading online retailer Amazon.com Inc launched its MP3 store in 2007 but still only has just over 12 percent market share.
"We're cautiously optimistic because Google has great scale and reach but doesn't have a track record in selling stuff," said another label executive who declined to be named as the talks are still ongoing.
A Google spokesman said the company has nothing to announce at this time.
Connected devices like Apple's iPhone and iPads or Google's range of Android-based phones will be the next battlefield for music, say various industry watchers.
Labels have been hoping that the introduction of new cloud-based music services from Apple and Google would be a major boost for winning over consumers who want to be able to access their music libraries, discover new songs and make impulse purchases wherever they have Internet access.
Apple bought cloud-based music company LaLa Media last December and closed it in April, leading observers to expect the launch of an Apple-branded cloud service. But on Wednesday Apple unveiled a social media enabled-version of iTunes, leaving some executives a little underwhelmed for now.
Perhaps not by coincidence Google also bought a remote media company called Simplify Media in May and has also promptly closed it down. It has yet to announce any plans for Simplify.
"If they get it right it will hasten the transition by consumers from music you have to own to music you need ubiquitous access to," said Ted Cohen, a former EMI executive who runs TAG Strategic Partners.
On Nasdaq, Google rose by $1.69 to $462.02 and Apple was up 64 cents at $250.97 late Thursday afternoon.
Reporting by Yinka Adegoke; Editing by Richard Chang