The Google-owned streaming service is locked in discussions with Universal Music Group, Sony Music Entertainment and EMI Music, an inside source told CNET.
Negotiations are said to be going "smoothly", with one record company already agreeing terms. YouTube has allegedly agreed to increase licensing fees, though some of the potential partners are calling for increased anti-piracy measures.
Last month, trade body the Recording Industry Association of America (RIAA) complained that YouTube hosts footage directing users to illegal copies of records, and condemned the website for not cracking down on videos that teach users to rip audio from music videos.
YouTube has become embroiled in disputes with record companies on several past occasions. A 2009 disagreement with royalty collection agency PRS for Music led to premium music videos being blocked for UK users for much of the year.
Google entered an agreement with several major record labels last year, following lengthy negotiations, to launch its Google Music service in the US.
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