By BEN SISARIO

Published: May 10, 2011

Google had big plans for its new digital music service. It wanted an online store to compete with iTunes and Amazon, as well as a “smart locker” storage system in which the company would stream music to its millions of users from a gigantic central jukebox.

A Google manager, Paul Joyce, helped introduce the service, called Music Beta, on Tuesday.

But the service that the company unveiled on Tuesday, called Music Beta by Google, fell short of those ambitions. There is no store, the streaming function comes with restrictions, and, like Amazon’s Cloud Drive service announced in March, using it requires a long upload process.

What came between Google and its ambitions was an obstacle familiar to many digital music start-ups: despite months of negotiations, the company could not obtain licenses from the major record companies.

In interviews, Google executives put the blame squarely on the labels. “Generally there were demands on the business side that we think were unreasonable and don’t enable us to have a sustainable, scalable music business,” said Zahavah Levine, director of content partnerships for Google’s Android unit and the lead negotiator with the labels.

Music Beta was introduced on Tuesday at Google I/O, a developers’ conference in San Francisco.

Neither Google nor the labels would specify which points they stumbled over. But their disagreement follows a long pattern of friction in which the labels demand high prices for licenses or withhold the licenses altogether. The stubbornness of the labels has earned them a particular caricature in Silicon Valley: the bridge troll, demanding payment for passage.

“They tend to not look at these things as opportunities, but as someone taking advantage of their business,” said Fred Goldring, a former top music lawyer who invests in media and technology companies. “Until they figure out how they’re going to deal new technology on their terms, they don’t make a move. And when they finally do, it’s usually too late.”

The labels believe they are protecting their content and maximizing income for themselves and their artists. But as technology companies and industry analysts see it, the labels’ conservatism in striking deals that involve their licenses hinders technological development and ultimately harms the marketplace by reducing consumer choice.

“The history of the digital music marketplace is littered with the ramifications of record label conservatism,” said Mark Mulligan, an analyst at Forrester Research.

Music Beta, which Google is offering by invitation only while in its trial state, will allow users to store 20,000 songs at no charge and stream them to Android phones, tablets and other devices. As with Amazon’s Cloud Drive, the company does not need special licenses as long as it stores each user’s files separately and then streams them back only to that user, intellectual property lawyers say.

But to sell music, or to operate a master jukebox of every available song and then matching users’ collections to it — widely viewed as the most efficient form of cloud music — Google would need licenses from the labels. Google’s plans were described by many record label executives who have been in discussions with them but spoke on condition of anonymity because their talks were private.

Google and Amazon have not been the only companies negotiating with the labels for cloud music services. Apple is preparing its own, and Spotify, a popular European subscription service, has been locked in talks for two years over American distribution rights. In most of these cases the disagreements are over lump upfront payments or concerns that a service that charges users too little could cannibalize other sales and devalue music overall, executives say.

Ted Cohen, a consultant and former major-label executive, said that when both sides of such negotiations have bad faith, customers suffer. “Neither side is playing fair with the other,” he said. “They go into the negotiations believing that the other side of dishonorable. It’s rare that both sides see that the common goal is to create a consumer experience that people value and are willing to pay for. Things don’t come to market because of this.”

But whether Google and Amazon have abandoned their bigger plans or were just scaling them back temporarily was unclear. In an interview, Ms. Levine denied that the abrupt introduction of Music Beta was a negotiating tactic. But music executives said that since Amazon introduced Cloud Drive — with almost no advance notice to the labels — it has been in discussions over licenses, and these executives, speaking anonymously, said they expected Google to eventually return to the negotiating table.

A more robust digital music service would attract more users to Google. But Mr. Goldring said that it was the labels that really needed to strike a deal.

“At the end of the day they’re clearly hurting themselves,” he said, “because they’re leaving money on the table.”

Claire Cain Miller contributed reporting.

via Google’s Digital Music Service Falls Short of Ambition – NYTimes.com.