March 5, 2013 at 12:22 pm

Why YouTube Is Launching a Music Service

youtube_music_service

Music is the most popular category on YouTube, and now, YouTube will have to pay the piper(s) in a whole new way -- so goes our theory, anyway.

A Bloomberg report that Google would launch a “Spotify killer” gained credence on Tuesday with Fortune’s report that YouTube — a division of Google — is in fact working on a subscription service, according to unnamed sources at Google and in the music industry.

Notably, this latest report refers to YouTube as the one to launch this service, not Google.

What’s the difference? Doesn’t Google own YouTube?

Well, yes — but YouTube is already by far the most popular source of on-demand music in the world, whereas Google Music is just one player in the music locker game. The kids think YouTube is a music service, and the breadth of its catalog might even be so huge as to be bad for music, in the sense that companies like Spotify, Rdio, Rhapsody, MOG, and Muze, which pay higher per-song royalties than YouTube does, have a hard time competing with all the free, on-demand music on YouTube — not just on their own, but in terms of powering apps, too.

As if it isn’t enough to compete with P2P networks, pure-play on-demand music services also compete with YouTube.

Thus, my theory: YouTube has to launch a music subscription, even if it loses money. If it doesn’t, some of the labels and publishers who currently authorize YouTube to play music will walk, and that would hurt both Google and YouTube.

YouTube’s official statement to Fortune is telling:

“While we don’t comment on rumor or speculation, there are some content creators that think they would benefit from a subscription revenue stream in addition to ads, so we’re looking at that.”

Surely, they do in fact think that getting paid more money is better than being paid less. That’s their job. With a YouTube music subscription, they would get paid more per stream than they do with YouTube’s ad revenue split. Luckily for them, they happen to control the music YouTube needs to sustain its popularity, and continue its growth.

And that gives them a big bargaining chip… which leads to this “YouTube music service,” which is notable no longer called a “Google Music service.”

Fortunately for Google, the concept of a YouTube music service makes sense. While YouTube might be the most popular on-demand music service in the world, it’s also arguably the most annoying. What’s up with all those ads? Why aren’t there more playlists being shared? And is there really no easier way to collect music there than by liking videos and putting them in the same bucket with your other liked videos?

A YouTube subscription service would solve those problems, and also stands to be quite popular given that so many people already listen to music on YouTube. Essentially, every song currently on YouTube could become an ad for this new subscription service, through which Google could upsell a music subscription, to use the business parlance. In addition, according to the report, subscribers wouldn’t have to sit through ads on the main YouTube site anymore, either.

We buy these reports that YouTube is launching a music service — just not that Google is doing so because it wants to.