Google will launch a music download service tied to its search engine later this year followed by a subscription service in 2011, according to the Wall Street Journal.
There has been speculation about Google's music plans for several months.
Although the WSJ said it was not clear if label deals had been struck, the paper reports that Google is in talks about offering a music service tied to phones running its Android system.
The download service is set to offer paid downloads by providing a link to the store when users search for an artist or song. The WSJ reports that insiders said the download store would be an interim step towards a subscription streaming service compatible with Android phones.
Google's plans could provide a challenge to digital music market leader iTunes. Apple is widely expected to be preparing a cloud-based version of iTunes in addition to its a-la-carte store.