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Google begins testing Google Music internally

Employees of the online titan have begun using Google Music to help smooth out kinks, music industry sources tell CNET. There's still one nagging problem, though: music licenses.

Welcoming Google to the party: At the 2009 Vevo launch party, Google CEO Eric Schmidt (center) visited with Doug Morris (left), the then CEO of Universal Music, and Rolf Schmidt-Holtz, former CEO of Sony Music. Greg Sandoval/CNET

Google has begun testing Google Music internally, a sign that the much anticipated service is nearly ready to launch.

Employees at the online behemoth have begun a process commonly referred to in Silicon Valley as dog-fooding, in which employees try out a new service or product, music industry sources told CNET.

Two weeks ago someone writing at the XDA Developers forum claimed to have accidentally discovered Google Music after installing the Honeycomb version of the Android operating system on a phone. Turns out, that was indeed a working version of the service, the music industry insiders said, adding, however, that the final version could be much different.

Google did not respond to an inquiry from CNET about Google Music.

Technologically speaking, then, Google Music--a streaming service users would access from Web-connected devices--appears close to being ready. However, the sources said the actual launch is being held up by the lack of one vital component. Music.

Google managers told counterparts at the top four record companies last year that they hoped everything would be in place for a launch by late 2010, sources said. More recently, Google tentatively planned to demonstrate the service earlier this month at the South by Southwest conference.

Negotiations with at least some of the top publishers and with the four largest record labels are ongoing, according to sources. The delays are largely due to the complexity of the subject matter. Google is after cloud music rights and not just for songs acquired from Google Music.

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CNET and others have reported that Google is negotiating for the right to store users' existing music libraries on the company's servers, the sources said. According to a report in Bloomberg this month, the labels are in similar discussions with Apple about cloud music, or music stored on third-party servers rather than on one's personal computer or other device.

Licensing rights for digital lockers of this sort is largely uncharted territory for the labels. There are no templates for these kinds of deals lying around and the record companies want to move cautiously as they assess Apple's and Google's plans.

What's certain is the labels want Google to join the digital-music fray. The possibility that an iTunes competitor of Google's caliber will soon hit the scene has music industry executives giddy.

The past year, digital music has stagnated. All the sector's excitement and promise seemed to seep out starting two years ago when the second wave of iTunes challengers began to disappear.

Imeem, Lala, SpiralFrog, Ruckus, Project Playlist, MySpace Music, Zune--they followed AOL Music, Urge, and Yahoo Music into oblivion or irrelevancy. They all took their whacks at the fearsome combination of Apple's software, hardware, and music store, and all lost. It remains to be seen what will come of Sony's new Qriocity streaming-music service.

Against such a force as iTunes, it can't hurt to have a challenger come in that's of equal size. Google is one of the most powerful advertising companies of all time and has a history of providing consumers access to sought-after and cheap content. Unlike many past so-called iTunes killers, Google can also combine a digital-music service with popular hardware (Android-powered phones).

Let's also not forget that Google has already seen some success in digital music. YouTube's music videos, which are ad supported and free to viewers, have become a popular way to discover new songs.

It's anybody's guess as to when Google Music might finally launch. Unveiling it could make for a nice opening act for incoming CEO Larry Page, who takes over in April. Otherwise, I'm guessing we might see the service in May, at the company's I/O conference.