Business Matters: What's Behind YouTube Music Service's Delays

YouTube was a source of music in the prior week for a third of all people surveyed by Edison Research and Triton Digital for their annual Infinite Dial report.

YouTube, which originally planned to launch its on-demand music streaming service late last year, has pushed its debut to the second quarter or beyond.

The deferment is caused by the online video company's desire to "get it right," according to an executive briefed on YouTube's plans. Under contracts that its parent company Google signed a year ago with major labels, YouTube already has the necessary licenses to operate a paid music service similar to Spotify or Rhapsody.

YouTube's cautiousness is a departure from the way Google typically introduces products. Its popular Gmail service, for example, spent its first five years in "beta" status as Google continually refined Gmail's features before it became a "final" product in 2009.

The feeling, according to people familiar with the thinking at YouTube, is that the service should be a more polished product with a clear, differentiated focus that can stand out against its rivals. "They feel that there's just too much scrutiny of this product, and that they need to get it right out of the gate," said a senior label executive who declined to be named because the discussions are confidential.

Billboard had previously reported that YouTube planned to launch its music service in December or January. YouTube declined to comment.

Among the various aspects of the product that YouTube has been tackling is what to show viewers who play tracks that don't have official videos. An early prototype showed static album art with a few factual details of the band and the track, said one executive who saw a demo. YouTube has been discussing the idea of an "art video" that would display more dynamic pictures or generic stock video, said another source currently in discussions with YouTube. It remains unclear what the final product will look like, sources said.

Another challenge is finding a model that seamlessly works with company's existing video service, which has become a popular free channel for younger audiences to discover and consume music. A survey released Wednesday by Edison Research and Triton Digital showed that while AM/FM radio remains the top source overall for keeping current with new music, YouTube was the No. 1 source for listeners aged 12 to 24 years. With YouTube's proposed paid music service, listeners can stream entire albums and build lengthy playlists, rather than continually have to hunt for each separate track.

YouTube's other difficulty lies in figuring out a business model for an audience that has come to think of YouTube as a free source of content. YouTube doesn't want to interfere with the current way its 1 billion active monthly viewers use its free platform, but it does want to carve out a premium music service that offers enhanced features and access to a more complete catalog. The current proposal calls for $10-a-month service alongside a discounted ad-supported version for $5 a month.

"They want to have something that can seamlessly complement what they currently have," said a YouTube content partner.

YouTube is not the only company to grapple with the complexities of launching a streaming music service. Beats Music was the source of equally frenzied speculation before it debuted its service in January after several delays. Also in the wings is Deezer, a French music service that has already launched in dozens of other countries and has said it will make its U.S. debut this year. Perhaps the wildest card in this radidly growing space is Apple Inc., which in the wake of declines in its music download business has been quietly floating the idea of entering the field with its own subscription streaming service.