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Tuesday, December 01, 2009, 07:40 am PT (10:40 am ET)

Google hopes to compete with iTunes, offer pay TV on YouTube

Google is reportedly looking to get into the pay-per-episode TV business with YouTube by offering streaming content for purchase via a service that would compete with iTunes downloads.

According to Peter Kafka of MediaMemo, multiple sources have indicated that YouTube hopes to offer streaming TV episodes for a fee. The plan would be similar to what Apple already offers with iTunes: a $1.99 cost per episode. Both sides are said to currently be in early negotiations, but are "optimistic" that a deal can be reached.

But a key difference for consumers would be the fact that the YouTube stream would cost the same price as iTunes, even though it would seem to offer less functionality. iTunes TV and movie downloads are saved locally on the user's system, where they can be shared with a host of Apple devices, including iPods, iPhones, the Apple TV, and other machines.

But YouTube and TV executives reportedly feel that this is simply a "perception problem," and have cited studies that most people who download TV episodes only watch them once.

"It’s also possible that YouTube may skirt the issue by launching a TV rental business without the big hits that Apple and Amazon offer," Kafka said. "One possibility: It could start by moving immediately to long and mid-'tail' shows and videos that aren’t available other places, and don’t have to match existing prices."

Google acquired YouTube, the Internet's largest video destination, in 2006 for $1.65 billion. The Web site already offers some ad-supported TV shows for free, and is looking to get into the movie rental business as well.

YouTube also plays a strong role in the iPhone, with a native application included on the device.

As YouTube looks to land a deal for TV episode purchases in 2010, Apple has reportedly been negotiating with networks to provide a $30-per-month subscription plan to deliver TV episodes via iTunes. Reports have suggested that Apple also hopes to launch its new service in early 2010.

Apple's subscription proposal is said to be based on the existing iTunes desktop software, and is not based on any forthcoming hardware like a new Apple TV or the company's long-rumored touchscreen tablet. Industry executives are said to be "intrigued" by the prospect of an iTunes subscription plan, though cable networks are reluctant to sacrifice existing relationships with providers like Comcast.

In October, Apple updated its Apple TV software to version 3.0. The redesigned interface includes a new main menu that gives users instant access to content, including the integrated YouTube.