Peter Kafka

Recent Posts by Peter Kafka

Why Google Thinks Two Music Subscription Services Are Better Than None

state of confusion is a pretty crummy song by kinks' standardsAlrighty. Time to start sorting out what Google is up to with music. And why it thinks it may make sense to launch two different music subscription services.

Spoiler alert! No one outside of a handful of Googlers really knows.

But we can make some educated guesses:

As previously reported, Google’s Android unit wants to launch a subscription service.

This one’s a no-brainer. Music is a key part of mobile, and Andy Rubin doesn’t want to cede that to outsiders like Spotify and Pandora. (Android’s effort to break into music via a download store and a scan-and-match locker have had little take-up.) And this one is relatively easy for music owners to sign off on, since they’ve already bought into the Spotify model — free ad-supported music that pushes users into a $10-a-month mobile offer.

As previously reported, Google’s YouTube unit wants to do … something with a subscription service.

At a minimum, YouTube is trying to collect the rights to sell music, in both audio and video form, via subscriptions. But it hasn’t told music owners what it actually wants to do with those rights, and it hasn’t shown outsiders a prototype of what it’s working on.

This one also has some logic to it, but it’s not quite as clear-cut. More on that shortly.

Before we get there, though: Regardless of what you’ve read about timelines (“imminent,” or “Q3,” or “2013,” or “sometime” are all options), none of this can happen if Google doesn’t get deals with the music owners.

Right now, as Billboard reports, Warner Music Group has signed on to both ideas. I hear that Universal Music Group, the world’s biggest music label, is interested, but is at least a month or so removed from inking a deal. But industry sources say that Sony Music is resistant to all of this. For now.

Even if Google gets all three of the big labels on board, it’s not home free. It needs buy-in not just from the people who own music, but from the ones who own the publishing rights — the underlying compositions for each song.

Sometimes those rights are owned by the big-three labels, but sometimes they’re not. And particularly outside the U.S., Google will need to make peace with the agencies that represent music owners. That could be tough, given that its relationship with some of them is frequently fractious.

So there are lots of ways this could get slowed down/crippled/derailed.

One encouraging sign that all of this could get done is the fact that Google is no longer insisting that music owners negotiate their deals with both an Android team and a YouTube team. Instead, YouTube content head Robert Kyncl is representing the search giant in all of its talks — though the deals are still going to get done separately.

Small beans? Sure. But at least it shows the Googlebots are beginning to grok the way the humanoids in the content business would like to work.

For argument’s sake, let’s say Google does get all of its deals done. What next?

The Android scenario is relatively easy to map out. Google has yet to show a competence for selling content, but its huge installed base will still make it a serious contender. And that will be an issue not just for Spotify, but Pandora and Apple and anyone else with a vested interest in digital music. At a minimum, it could make Android phones more attractive and/or harder to switch away from. And that may be enough to make Rubin happy.

The YouTube version is harder to nail down. As many people have pointed out, YouTube already functions as the world’s biggest digital music service. That’s in part because of the official music videos it serves up in conjunction with Vevo, the video company it is set to invest in.* But mostly because of all the music that its users upload to the service, with homemade visuals and without permission, which ends up staying there with the blessing of the music owners.

So why does it need to sell music? As Eliot Van Buskirk notes, all of that free music may be the reason YouTube is talking about subscriptions. Offering a paid version may make the music owners more likely to keep their free stuff up there, too.

Background: In olden days, music owners got paid a small fee every time someone played their stuff on YouTube. All those small fees added up, which was nice for the labels, but a real problem for YouTube, particularly when it didn’t have much of an ad business to absorb those costs.

Fast-forward to today: Now the music owners get a cut of the ads YouTube shows when it plays their songs. Much better for YouTube, but music owners grumble that they’re not making enough. And their deals are all up for renewal right now.

Subscriptions can solve problems for both sides. YouTube can tell music owners that it’s providing a funnel to encourage people to actually pay for music. And the music owners can let YouTube hang on to what may be its most valuable asset, which it can keep offering for free.

I don’t believe music subscriptions indicate a real change in Google’s plans for YouTube, though. As far as I can tell, Google fundamentally sees the site as a giant advertising platform, and I don’t think a new music product changes that. Just like the talks YouTube is holding with other content owners about other subscriptions.

I also don’t see how YouTube’s audience, which skews very young and probably hasn’t bought a thing from Google in their lives, is likely to pay for any of this stuff.

But if subscriptions — or even the idea of subscriptions — help convince YouTube’s partners to keep supplying their stuff to the site, then that’s probably good enough to keep everyone happy.

*As far as I can tell, none of the subscription talk affects Google’s plan to renew its Vevo deal and put money in the site. The reason the Vevo deal hasn’t been finalized, I’m told, is because its closing has always been contingent on Google wrapping up other deals with the labels, including subscription rights, as I reported earlier.


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