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Thursday, September 02, 2010, 05:40 pm PT (08:40 pm ET)

Google planning music store to take on Apple

Google is negotiating with music labels to secure licensing for a music download store and "digital song locker" that would challenge Apple's digital music reign, a new report claims.

According to Reuters, Google Vice President of Engineering Andy Rubin, the brainchild behind the Android mobile OS, has been meeting with label executives to pitch an in-development online music store. Rubin hopes to launch the service by Christmas, sources said.

Industry executives are very enthusiastic about Google entering the market to compete with iTunes. Although the labels are "grateful" to Apple for what the company has done for digital music sales, Apple's increased dominance also has music labels worried. The iTunes Music Store currently accounts for 70 percent of all digital music sales in the U.S.

"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," said one label executive. "What you'll have is a very powerful player in the market that's good for the music business."

In the past, music labels have clashed with Apple CEO Steve Jobs over pricing and formatting. Executives hope that competing digital music retailers will provide labels with better leverage when negotiating with Jobs.

While Google's size and abundance of resources will certainly give momentum to a music launch, especially if it takes advantage of Android's market penetration, bigger hasn't always meant better. Amazon has managed to capture just 12 percent market share with its three-year-old MP3 store, despite being the biggest online retailer in the U.S.

"We're cautiously optimistic because Google has great scale and reach but doesn't have a track record in selling stuff," said another label executive.

Google won't find its competition resting on its laurels. Jobs made it clear during his keynote Wednesday that Apple employees are deeply passionate about music. The Cupertino, Calif., company released an updated version of its iTunes software, adding Ping, a social network for music.

Although Google and Apple worked together early on, they have recenly become bitter rivals. Jobs reportedly felt betrayed by Google when it entered the phone business.

At Wednesday's media event, Jobs insinuated that Google was inflating its Android activation numbers with upgrades, a claim that was promptly denied by a Google spokesperson.