The freemium service would offer both audio and video and could launch before the end of 2013.
According to Billboard, the service would be on a par with Spotify and is being developed with mobile listeners in mind. A premium -- i.e. subscription-based -- version of the service will give users unlimited access to songs and their accompanying videos, will work offline and will be ad-free.
Although YouTube refused to comment on the story, it has recently announced that one of the major changes coming to its mobile app will be the ability to consume content offline when there's no internet connection available.
According to sources, even the free version of the service will offer unlimited access to YouTube's catalog of tracks as one of the main reasons for the service is to drive as many people as possible to the company's site and regale them with advertising.
As the Billboard article highlights, YouTube has a distinct advantage over competitors in the music streaming market as, thanks to parent company Google, it has already ironed out any potential licensing issues, meaning that its service will be able to hit the ground running with a large back catalog offering from day one.
Although launching an on-demand music streaming service would make YouTube a direct competitor to Google's own Access All Areas music service, the fact is that YouTube is already widely used as a de-facto jukebox, so why not cash in?