Is Google Building an iTunes-Killing Music System?

The Gizmodo guys spot rumors that Google's free music service -- currently in a test-mode in China -- could be making a journey across the Pacific in the near future. A few months ago, I suggested that Google make YouTube more like iTunes. After all, if you've got access to legal high quality music and the ability to make playlists on YouTube, why not build an interface similar to the iTunes homepage, that organizes the Top-40 music scene and viral music world to encourage users to think of YouTube as an acceptable, free, online alternative to iTunes and streaming music sites like Pandora?

The details on the new Google venture are still sketchy, but this is an interesting point about why Google's not likely to get away with a free music model in the US. It's also an interesting reminder about how Google's expansion into China forces the company to straddle two worlds.

Consider their Chinese service, Top100.cn: The free, all-you-can-eat model makes sense there, where download piracy rates approach 100% and music industry revenues, despite massive listenership, don't even touch $90 million dollars. in that context, Google's projected $14.6 million in ad revenue counts as a victory.

But here, the music industry sees ten billion dollars pass through its hands on a yearly basis, and people still (occasionally!) pay for music. Even assuming higher per-click ad values, it's hard to see how Google could just give full downloads out for free. Maybe it could stream, like Spotify? Or, you know, just sell music, like iTunes? Techcrunch doesn't seem to have much in the way of leads on this, but they leave it here: