Is Google's Eric Schmidt the next David Geffen?

Fans use Google's YouTube to legally share music. The Android phone is helping to sell tunes, and the search engine is still all-powerful. What does this mean for the music industry?

Google's name is on the lips of music industry powerbrokers.

The top music labels are seeing big music sales from Google's G-1 mobile phone. CNET Networks

For several years, YouTube has been a disruptive force in film and television. Now music poobahs are wondering what designs Google may have on their businesses. Three of the four largest recording companies are in talks to renegotiate music-licensing deals with Google's YouTube. Sony Music is very near to inking a YouTube agreement, say my industry sources. Meanwhile, YouTube has reportedly started to generate "tens of millions" for some of the labels.

At the same time, the music store Amazon.com created on Android, Google's mobile-phone operating system, is leading to big music sales. Google declined to provide numbers or to comment for this story, but my sources say that the labels are "very happy" with Android's songs sales. In addition, Google could one day tap into a huge market by helping people discover and buy music using search, according to Susan Kevorkian, an analyst with research firm IDC.

For example, Google could post "click-to-buy" links when someone keys a song title into Google's search engine, Kevorkian said. The company could also conceivably use its search engine to suggest songs or alert people to local music events.

Incredibly, Google CEO Eric Schmidt, a lifelong technologist, could find himself becoming an accidental music industry titan, a sort of digital-age David Geffen or Ahmet Ertegun. Google, of course, has many challenges ahead of it before executives there wield that kind of influence. Geffen and Ertegun, after all, were two of the most powerful label bosses ever.

No one is saying, of course, that Schmidt will be hanging gold albums on his office wall or moving to Hollywood. For one thing, Google isn't in the business of promoting talent or producing records. For another thing, the company hasn't produced the kind of revenues that would put it on par with the likes of iTunes or even Amazon, according to one music industry source.

Not only that, Google at this point doesn't possess the licensing rights to the music libraries from all four major labels. YouTube and Warner Music Group failed to reach a new licensing agreement and Warner's content has been removed from the site.

But in terms of influence, matching what the old record moguls accomplished isn't that hard to imagine.

Google's a powerful music distributor
Let's start with YouTube. Worldwide visitors to the site now number more than 100 million per month. Of the top 20 all-time most viewed clips at the site, 12 of them are music videos. The most watched YouTube channel belongs to Universal Music Group, the largest of the four top record labels. And YouTube has become one of the most popular ways to share music legally.

Google's appeal as a digital jukebox is first that it's free of charge to users and that many people are so familiar with the site. The site enables fans to embed songs on their blogs or Web sites and provides an easy and legal way to share music. If someone wants to send a song to a friend, they can just e-mail a link to the song's YouTube video.

YouTube is trying to capitalize on the popularity of music videos by posting click-to-buy links near the videos that lead to Amazon or Apple's iTunes. Google declined to provide sales numbers for the ads.

Google's G-1 cell phone could become an even more powerful music platform than YouTube--that is if the phone continues to attract consumers.

Studies show that sales of mobile music will skyrocket in the next two years. Songs purchased via handsets will reach $7.3 billion by 2011, nearly equal to that of digital downloads, according to a report from eMarketer. Together, they are expected to make up 56 percent of total music sales.

More than 1 million G-1 units were sold in 2008, the year it was launched. Apple has raised its mobile music stake by enabling iPhone owners to download music via cellphone networks.

This is all mostly good news for the major labels. They need to find new distribution models as record stores disappear. They need competitors to iTunes, which has become too powerful for some in the music business. They need to have a strong presence in mobile music sales.

Google needs to drive more music revenue
Where things could get sticky for the labels is if they hand too much power to Google. They don't want Schmidt to be able to dictate to them the way that Apple CEO Steve Jobs (registration required) has for the past few years.

For Google, one of the main challenges is executing a new music ad model. Two music industry sources say that Google has done only a lackluster job of selling ads against music videos and other label content. Another hazard is in negotiating with the labels.

For example, Warner Music pulled out of talks with YouTube after Google reps declined to fork over upfront money, my music sources said. All three of the other labels receive advances but Warner doesn't. The reason is Warner agreed to forgo an advance back in 2006 when it signed its original deal and YouTube wants to maintain those terms.

Of course, there's Apple. Anybody selling music, either downloads or the ad-supported kind, must consider Apple their biggest competitor. Apple's iTunes appears on pace to sell 2 billion songs a year.

Perhaps the biggest question is whether anybody wants Google to have a grip on videos, music, news, books, photos... all our media?

 

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