"We're adding subscription-based features for music on YouTube to bring our music partners new revenue streams in addition to the hundreds of millions of dollars YouTube already generates for them each year," a YouTube spokesperson told Billboard, which reported the news.
Sound impressive? Possibly, but there's also a hitch. According to Billboard, YouTube has failed to reach an accord on royalty rates with a number of the leading independent labels. In those cases, YouTube plans to pull free-to-listen tracks that wouldn't also be available in the premium service.
What to watch for if you're a Pandora investor ...
How users will react to a muted edition of YouTube music isn't entirely clear. In the meantime, Pandora and Spotify are left to figure out how to compete with yet another a new entrant that will grow stronger over time. YouTube is simply too big, and Google flush with too much cash, to not figure out a deal.
There's also history to consider. Unlike Amazon.com, whose Prime Music is also a new player, YouTube has spent years acting as a sort of digital mixtape service for cheapskates like me. (Here's my admittedly limited and silly "epic movie and TV themes" playlist, if you're so inclined.)
Still others, such as South Korean rapper PSY and Justin Bieber, have found fame after posting their music to YouTube. To this day, major labels earn millions in revenue from ads attached to music videos posted at the site. A premium service was all but inevitable.
What should Pandora investors watch for as YouTube stakes its claim? Two things, I think. Continued gains in listening hours per month among its user base, and ongoing gains in revenue per 1,000 listening hours. Those are the metrics that tell us whether Pandora is engaging with its listeners and worth the premium investors are paying.
Now it's your turn to weigh in. Do you think YouTube's premium music service has a chance of disrupting Pandora? What about Spotify? Leave your take in the comments box below.
Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Google (A and C class) at the time of publication. Check out Tim's Web home and portfolio holdings or connect with him on Google+, Tumblr, or Twitter, where he goes by @milehighfool.
The Motley Fool recommends and owns shares of Amazon.com, Google (A and C class), and Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.