Citing unnamed ‘people familiar with the matter’, Reuters says Google’s VP of Engineering Andy Rubin (which we likened to a Steve Jobs-caliber product fanatic in the past) is spearheading talks with music labels on plans for a digital music download store and cloud-based song locker service, which he hopes will see the light of day before year’s end.

Only thing that could get in the way of a pre-Christmas debut: the company has yet to sign a single licensing deal with the music labels, those same sources told Reuters.

It’ll be interesting to see if Google can get some of those deals signed in time for the launch of Android 3.0, code-named Gingerbread, which is expected to come in the fourth quarter of this year. Perhaps writing Santa a letter will help?

We recently broke the news that Google had hired well known music attorney Elizabeth Moody to assist them with negotiations with music labels and other rights holders for their upcoming iTunes rival. Needless to say, such negotiations aren’t exactly a walk in the park.

Each major label has different goals and strategies for digital music, and people in the know we’ve spoken to in the past say it’s nearly impossible to get them to agree to terms that will make a streaming music service viable. In particular, they tend to disagree over how long a free trial period might last, and whether or not a credit card from the user needs to be on file before the trial starts.

That’s not to say the industry isn’t excited about Google’s imminent entry into the digital music arena. As good as Apple’s iTunes, which just got a new, social-network enhanced version with the launch of iTunes 10 earlier this week, has been for them, executives at the major music labels have long considered Apple’s immense stronghold in the field an issue.

Surely, they welcome competition from a rival the size and reach of Google, as the iTunes Music Store has cemented itself the king of the hill over the years, accounting for approximately 70 percent of all digital music sales in the United States. Dependence on a single player isn’t exactly the industry’s vision of a bright future.

One label executive, who asked not to be named, told Reuters as much:

“Finally here’s an entity with the reach, resources and wherewithal to take on iTunes as a formidable competitor by tying it into search and Android mobile platform. What you’ll have is a very powerful player in the market that’s good for the music business.”

Another unnamed label executive expressed more caution despite his or her optimism, stating that Google lacks a track record in “selling stuff” (which is true).

It’s also worth questioning if Google’s entry in the digital music space leaves much breathing room for smaller, innovative startups to compete and maintain viable relationships with the music industry.

With Apple, Google and Amazon fighting for every penny, it’ll become even harder for the likes of Spotify, Rdio and MOG than it has already been so far. Which, to be clear, isn’t to say none of them will thrive or attract sizeable audiences – I just wonder if they’ll be left battling for increasingly smaller pieces of the pie rather than grow into giants themselves.

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Authors: Robin Wauters

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