YouTube is preparing a premium on-demand music service -- akin to a Spotify, but with video -- to launch later this year, according to several sources familiar with the plans.

The service, designed with mobile listening in mind, will have a free component and a premium tier that offers unlimited access to a full catalog of tracks similar to what's already available via YouTube's parent company, Google Inc., via its All Access subscription music service. Premium features would include the ability to cache music for offline listening and removing ads.

The free tier is likely to be unlimited, on-demand access to full tracks on all platforms, including mobile, said several people who have been briefed on the proposed service. In that sense, the paid tier is more of a "soft sell" as YouTube's primary goal is to continue to amass ears and eyes to its mobile platform to sell ads.

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But having a paid tier, with all the required licenses for a premium on-demand product, gives YouTube more flexibility in packaging and selling music with fewer restrictions on what it can do with the music, multiple sources pointed out. In addition, there are strategic reasons for developing a premium music video service that could be paired up with other Google products in the future, including Google Glass.

YouTube declined to comment on its plans.

"We’re always working on new and better ways for people to enjoy YouTube content across all screens, and on giving partners more opportunities to reach their fans," YouTube said in a statement. "However, we have nothing to announce at this time."

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While the timing of the service's launch has not been determined, YouTube has said it is hoping to release a product this year. If it succeeds, YouTube could come out ahead of Beats Music, which is supposed to launch later this year, but could be delayed until early next year, according to several people knowledgeable with Beats.

YouTube, through its parent company Google, already secured most of the licenses it needs to launch a music service earlier this year, beginning with Warner Music Group in March, followed by Sony Music Entertainment and Universal Music Group. The licenses obtained were for both Google's All Access service, which launched in May, and for a YouTube music service.

Many younger listeners already use YouTube as a free, on-demand jukebox -- searching for, and finding, official music videos of major releases. The challenge for YouTube has been to create a service that would be better than what it currently offers its audience in order to justify a monthly fee of around $10.

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One big added feature could be the ability to stream full albums. Currently, not all songs in an album are available on YouTube because artists generally select one or two tracks from any single album to feature in a music video. A second potential premium feature would be offline cacheing of songs and videos so users can listen on their mobile devices even when they're not connected or when they're trying to save on bandwidth costs or battery consumption. Finally, the removal of ads would almost certainly be a feature in the premium offering, sources said.

The introduction of a premium music tier is likely to coincide with a larger redesign of the YouTube mobile app that would give users a simple, clean interface in which to listen to music, create custom playlists and watch videos at the same time.



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