Bloomberg News

Google Unveils Music Service, Challenging Dominance of ITunes

November 18, 2011

Nov. 17 (Bloomberg) -- Google Inc., the world’s largest Internet-search company, introduced a music service that lets people buy songs through the Android Market, stepping up competition with Apple Inc.’s iTunes store.

Users will be able to store and stream as many as 20,000 songs on Google Music, the company said yesterday at an event in Los Angeles. Google has forged partnerships with 1,000 record labels, including Vivendi SA’s Universal Music Group, Sony Corp.’s music unit and EMI Group Ltd., letting it offer a total of 13 million songs.

Google has expanded into music, television and movies to help promote its Android smartphone operating system and marketplace. The company, based in Mountain View, California, also will let users share music on its Google+ social network. The challenge will be weaning away users from Apple’s music products and services, which generated $6.3 billion in the last fiscal year.

“Music is more important to Google than ever before,” Jamie Rosenberg, director of digital content for Android, said at the event.

The service will offer reviews, band information and exclusive content from artists such as Coldplay. Users will get 90-second previews of songs before they buy. For a one-time $25 fee, Google also is allowing artists to create pages to display videos, bios and sell self-published music. Users will receive 70 percent of sales and can set pricing.

Fighting Piracy

For record labels, the effort helps ensure that consumers purchase their music legally. It also decreases music companies’ reliance on iTunes, the leading seller of digital songs.

“Any new legitimate place to consume music legally is the best tool we have to combat piracy,” Rob Wells, who oversees digital operations at Universal Music, said at the event.

Some songs are free, while others cost 69 cents to $1.29. The service will work closely with T-Mobile USA Inc., letting that carriers’ customers pay for tracks on their phone bills. Warner Music Group hadn’t yet reached an accord with Google because of pricing and piracy concerns, two people familiar with the matter said earlier this week.

Google shares fell 0.8 percent to $611.47 yesterday. The stock has climbed 2.9 percent this year.

Apple first unveiled its iPod music player in 2001, and in 2003 started the iTunes music store, offering songs for 99 cents apiece. The company has benefited in the past decade from the shift to online music services from CDs. Apple’s iTunes service works on its own devices, such as the iPod, iPhone and iPad tablet, as well as personal computers from other manufacturers.

Android Versus IPhone

Google competes in the smartphone market by letting manufacturers customize the Android system for their hardware. T-Mobile introduced the first phone powered by Android software, made by HTC Corp., in October 2008, more than a year after Apple’s iPhone debuted.

Android led the global smartphone industry in the third quarter, with 53 percent of the market, according to Gartner. Apple’s iPhone software had 15 percent.

Still, Google may have a harder time narrowing Apple’s music lead, given the longer head start and how established iTunes has become. ITunes customers have downloaded 16 billion songs.

“They have to overcome the No. 1 incumbent in this area,” said Mark Little, an analyst at research firm Ovum in London. “That’s not an easy company to grab share from.”

Amazon.com, the world’s largest online retailer, offers MP3 song downloads from the major labels with a service that began with a public test in 2007. Amazon also unveiled a storage service for users earlier this year.

Spotify’s Service

Music provider Spotify, helped by its partnership with leading social-networking service Facebook, is emerging as another online-music alternative. Since its start in the U.S. in July, Spotify has grown to about 2 million subscribers who pay $5 to $10 per month for a premium service, according to Ken Parks, chief content officer for the London-based company.

Even if it takes a while for Google to secure an agreement with Warner, whose artists include Green Day and Madonna, the company’s reach on the Web may help it succeed. Google’s network of websites had the most visitors worldwide in September with 1.1 billion, according to ComScore Inc. Microsoft Corp. sites had 914 million, and Facebook was No. 3 with 770 million.

“I doubt they’ll meet with immediate success,” Ray Valdes, an analyst at Gartner Inc. in San Jose, California. “If they fail, it will take a while for that to become evident because they have enough presence to make at least slow progress for some time.”

--With assistance from Brian Womack in San Francisco. Editors: Nick Turner, Jillian Ward

To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Douglas Macmillan in San Francisco at dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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