YouTube, which has been quietly talking to music studios for months, is poised to launch a streaming service this year according to Fortune. The report says the service will mimic Spotify by offering listeners a choice between an ad-supported model and a paid subscription version.
The arrival of the YouTube (s goog) music venture has been rumored for a while and, when it comes, it will be the latest entrant into an evermore-crowded digital music space. In addition to Spotify, there is also a variety of other online music libraries like Pandora, SoundCloud and Vevo — a venture backed-by major studios that now uses YouTube as one of its distribution platforms. Apple is also rumored to be launching a streaming service.
For musicians and rightholders, the arrival of Google-owned YouTube and its deep pockets could be good news. While the music industry has come to embrace digital distribution, it has also complained that the royalties it receives are still meager.
Now, though, the entry of giants like YouTube and Apple(s aapl) is likely to give new leverage to the music industry in negotiating royalty rates. This is the case not only because these companies are awash in cash but also because more demand for digital music is likely to increase studios’ pricing power. Conversely, this could also spell bad news for Spotify; in the same way that Netflix(s nflx) struggled when its earlier movie contracts expired, Spotify could be confronted with much higher content bills in the near future.
A music-streaming service for YouTube will also give it a new platform to test pricing model for paid subscriptions. This process could provide lessons for YouTube’s video service which is coming under criticism for failing to deliver enough ad revenue to creators.