Exclusive: Google is planning to roll out a music streaming service to capitalize on the power of YouTube.
FORTUNE -- YouTube, the world's largest digital repository of streaming media, will launch a subscription music service later this year. The service has its own negotiating team and operating unit but will likely have some overlap with new features also rumored to be coming to Google's Android music platform, Google Play.
The two new services are defined by their respective places in the Google (GOOG) empire: Google Play for Android is a digital locker for music -- users buy, store, and sort a collection of tracks; but on YouTube's coming service, anyone can listen to tracks for free. Both services are said to be adding a subscription fee that will unlock additional features. For the YouTube-based service, this will likely mean ad-free access.
Fortune was briefed on the service by sources in the record industry and at Google who declined to be named. Through a spokesperson, YouTube issued the following statement: "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."
YouTube is already one of the most heavily used music services in the world, but it hasn't yet charged users. Instead, it sells ads against its music videos; a cut goes back to the record companies. Of the ways music is consumed today, spending on subscription-based streaming ("renting" music rather than "owning" it) is a fraction of what spending on digital purchases on stores like Amazon (AMZN) or Apple's (AAPL) iTunes store can reach. Fewer people subscribe, and of those, the spending per month is generally lower.
Even so, major music labels have found that there is money to be made via streaming music services. The Warner Music Group, which, sources say, has partnered with YouTube and Google on the new ventures, received about 25% of its digital revenue from streaming last year, according to its quarterly reports. Record companies aren't in perfect agreement as to how much of their content to give away and are still hashing out what aspects of the user experience will be free on YouTube's new service, particularly when accessed from mobile devices. There is concern that under a "freemium" model, listeners might get used to not paying for music (again) and that revenue would be tied to the ad sales that subsidize the free content.
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