Why Record Labels and Google Music Couldn't Agree on the Cloud

Google's decision to launch a music locker service was a big topic of discussion on the sidelines of the NARM conference in Los Angeles this week. The reaction from the more veteran music industry attendees is simply anger.

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"People are pissed," said one source from a major record label in attendance.

The announcement didn't catch the labels totally by surprise. Google tipped them off that it was coming. But that didn't temper the negative reaction that resulted. And the tone of Google's comments--essentially blaming the labels for not being able to reach a deal--didn't help.

So what went wrong? Here are the three largest sticking points that arose in the licensing negotiations:

Money

Labels of all sizes wanted upfront advances. Google was willing to pay upfront advances. But some labels wanted larger upfront advances than others. And then other labels would learn of the advances agreed to in those deals and then demanded similar rates. And the independent labels wanted to be treated on equal terms as the majors.

Piracy

There was disagreement about whether music files gained from P2P sites should be allowed into the locker. But the bigger issue was that labels wanted to use the negotiating process to lean on Google to eliminate links to pirate sites and services from its search results.

Competition

Labels don't negotiate in a vacuum. They consider how a given service will impact the revenue streams they're currently enjoying from other services that may prove competitive. Will licensing to Google bring in new revenue, or just take revenue away from current streams? As much as some executives may want a strong competitor to Apple in the marketplace, others may not, and leverage from Apple may have played a role here.

Also complicating matters, some sources say, is that Google kept changing the details of what they planned to launch. At one point, a music subscription streaming service was discussed. Then scan-and-match locker with various types of features built atop it.

Google ultimately went live with what it did for two reasons. First, it had completed work on its new music player app for Android devices six weeks prior to the music locker launch. Google wanted to get that app into the marketplace. Another motivating factor was Amazon's recent launch of the Cloud Drive. And finally Apple's upcoming launch that many expect to happen by late spring or early summer.

Twitter: @AntonyNBruno