A clouded view of Google Music

The out-of-beta launch of Google Music’s MP3 store was met by a collective “meh” from most commentators. “Nice,” seemed to be the verdict, but nothing special. Perhaps not even necessary, given the myriad legal sources of music already available on the web. At best, it was greeted as a credible challenge to Apple’s iTunes, albeit one with a smaller library of music available for sale. The deals Google was able to sign, however, are in their own way groundbreaking, and they could point to a more significant shift under way in the online music business than simply the addition of another MP3 store.

Google was only able to secure licensing deals in time for the launch with three of the big four record distributors — Sony Music, Universal Music and EMI — along with a large number of indie labels. Warner Music titles, which are available to iTunes users, will not be available in the Google Music Store, at least for now. The most salient fact about Google’s deals with Sony, Universal and EMI is that they happened at all, given the design of Google Music. The foundation of Google Music is the free cloud storage and multidevice streaming access it offers users for their existing collections of digital music. Under the Google Music terms of service, users can store up to 20,000 tracks on Google’s servers, free of charge.

Apple offers a similar cloud-storage option for iTunes users, via iTunes Match, but it charges $25 a year for the service. In the view of many at the record labels, cloud-based storage can only serve to encourage piracy by making it easier and more convenient for users to access the illegally downloaded music in their collections. By forcing Apple to charge users for the service, a portion of which is shared with rights owners, the labels were able to extract at least some revenue from those unlicensed downloads.

Google Music, however, is still not charging users for cloud-based storage, even as it adds its MP3 store to the service. According to the updated “About” section, Google Music users can still store up to 20,000 tracks in the cloud for free, regardless of where they came from, while integrating new purchases with their online collections.

To my knowledge, Google Music is the first case in which any of the major record labels have agreed to grant licenses to a service that also facilitates the storage of unlicensed music.

Oddly, neither Google nor any of the labels involved have exactly gone out of their way to draw attention to that groundbreaking shift in music licensing terms, perhaps because the labels want to evaluate its impact as quietly as possible before deciding whether to extend the practice. Google’s refusal to charge users for online storage may also explain why Warner Music has yet to come on board with Google Music.

In any case, the apparent shift in the labels’ attitude toward licensing online services could presage opportunities for new types of services and service providers by enabling new types of business models. In his analysis of the digital music market for the omnibus report “Connected world: the consumer technology revolution,” GigaOM Pro Director of Research David Card did not include either Google or Apple (or Amazon) among the companies to watch in the online music space, largely because, in his view, the action has shifted from MP3 stores to subscription-based cloud streaming services.

If the labels really are ready to bless the integration of MP3 downloads with unlicensed cloud-based storage, however, the action could shift again.

Question of the week

How will Apple respond to Google’s arguably better deals from the labels?