Google to Offer Paid Music Service

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Internet search giant Google Inc. (GOOG) is planning to start a subscription-based music streaming service to challenge companies such as Spotify Ltd. who offer a similar kind of service to music lovers.

Launched in October 2008, Spotify Ltd. is a music streaming service provider with about 20 million users, a quarter of which are paid users with monthly subscriptions of $4.99–$9.99. Spotify Ltd. offers music from major record labels such as Sony Corp. (SNE), EMI, Warner Music Group and Universal.

Currently, music lovers can access this service via Microsoft (MSFT) Windows, Apple Inc.’s (AAPL) Mac OS X, Linux, Telia Digital-tv, iOS, Android, BlackBerry, Windows Mobile, Windows Phone, S60 (Symbian), webOS, Samsung Smart TV, Squeezebox, Boxee, Sonos, WD TV, Roku, MeeGo and TiVo.

Google Inc. is negotiating with major record companies to license their music. This strategy would strengthen its Android OS as more customers use its paid services.

Previously in Jan 2013, Google launched a paid service for customers opting to buy songs through the Android Market. This service from Google was directly targeted at its rival Apple Inc.’s iTune services.

Google has been improving its music service over the last few months. Recently, Google Music came out with a new scan and match feature to better compete with its rivals. The feature allowed a user’s music to be matched in the cloud so that songs could be played on any authorized device. The service enables users to upload their music to the cloud from their respective files.

As per a report by market research company, NPD Group, Apple accounted for 64.0% of U.S. online music sales in the second quarter of 2012, followed by Amazon at 16.0%. Google notched a mere 5.0% share and other services made up the rest. While Google remains far behind, the Android OS could be just what it needs to drive demand for both its free and paid services.

According to the market research company, IDC, Android shipments touched 136.0 million units in the third quarter of fiscal 2012, which is 75.0% of overall shipments and was followed by Apple’s iOS that accounted for 15.0%. So Google clearly dominates the mobile OS segment.

Google’s rapid expansion into music, television, movies, consumer items (rice cookers, refrigerators, cameras) is an attempt to attract more users to the Android eco system. It is also going all out to break Apple’s and others’ dominance in online music going forward.    

In the fourth quarter of fiscal 2012, Google’s gross revenue (including TAC) touched a record $14.4 billion, representing sequential and year-over-year increases of 2.3% and 36.2%, respectively. Excluding the $1.5 billion contribution from Motorola, revenue was up 21.9% from the year-ago quarter.

Google has a Zacks Rank #3 (Hold).

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