Google co-founder Sergey Brin participates in a panel discussion in Mountain View, California February 9, 2010.

Credit: Reuters/Robert Galbraith

SAN FRANCISCO (Reuters) - Google Inc said on Friday it was the target of an investigation by the Texas Attorney General’s office into the fairness of its search engine rankings.

The world No. 1 search engine company said the probe is the first by a U.S. legal authority into the fairness of its rankings, which can make or break commercial websites.

Google faces a similar probe by the European Commission, prompted by complaints from some small websites that felt they were unfairly hurt by low Google search rankings.

Texas Attorney General Greg Abbott has asked for information about complaints from a number of companies, Google said on its website. Google specifically mentioned websites operated by Foundem, TradeComet and myTriggers as challenging its results, saying they competed with the search giant.

A spokeswoman for the Texas Attorney General confirmed the probe, but would give no further details. Google said it looks forward to answering questions from the Texas attorney general.

"We recognize that as Google grows, we’re going to face more questions about how our business works," Deputy General Counsel Don Harrison said in a blog post. Harrison was not available for further comment.

In its statement on Friday, Google pointed out that two of the companies are represented by attorneys who also work for Microsoft Corp, which has publicly encouraged companies to challenge Google’s business practices. Microsoft did not immediately respond to a request for comment.

TradeComet CEO Dan Savage said in an email that Google is trying to "distract from its own antitrust problems by pointing to others and their lawyers."

A myTriggers spokesperson added that its concern "is just the harm to myTriggers done by Google’s anti-competitive conduct and bullying tactics."

Foundem did not respond to a request for comment.

PRIVACY SUIT SETTLED

Separately, Google has settled a federal lawsuit accusing it of privacy violations in connection with its Buzz social networking service, according to a court document filed on Friday.

To settle the lawsuit brought by a Gmail user, Google will set aside $8.5 million for attorneys fees and donations to organizations focused on Internet privacy, according to the court filing.

In addition, "the settlement requires that Google undertake wider public education about the privacy aspects of Buzz," the filing said.

Launched in February, Buzz initially used an individual’s email contacts from Google Gmail to build a social network of contacts that the rest of the world could see, which led to privacy concerns. Google then changed the settings so that contacts were kept private by default.

The settlement filing comes as Google also said it would simplify and update its privacy policies, according to Associate General Counsel Mike Yang on the company’s website (here).

The case is: In Re Google Buzz User Privacy Litigation, 10-cv-00672, U.S. District Court, Northern District of California, San Francisco.

(Reporting by Dan Levine; Editing by Matthew Lewis, Leslie Gevirtz and Richard Chang)

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LOS ANGELES (Reuters) - Shares in Netflix Inc neared their all-time high on Thursday, after Apple Inc said that the company’s streaming video service would be added to a new version of Apple TV.

The tie-in with Apple TV, a smaller, cheaper version of Apple’s earlier web-to-TV product, could cement Netflix’s dominance in the online movie rental business.

Netflix’s 15 million subscribers already stream many movies online over dozens of devices, including Web-connected televisions and Blu-ray players, as well as game consoles.

Piper Jaffray analyst Michael Olson estimates that Apple will sell 1.5 million units of Apple TV in 2011, on top of the 65 million or so Netflix-enabled devices already in consumers’ hands.

"By far, they are the leading streaming company so everybody’s gunning for them," said Edward Woo, an analyst with Wedbush Securities. "Everyone sees what Netflix has with their subscription model, and it’s only a matter of time until everyone starts to copy them."

Netflix shares rose 3 percent to $137.93 on Nasdaq on Thursday, near its all-time high of $140.90 hit last month.

AMAZON CHALLENGE

Amazon.com Inc also offers streaming of movies and TV shows over a number of devices, but the online retailer has been slow to create its streaming business.

Amazon has 118 million customers that it could use to build its streaming business, Barclays Capital analyst Douglas Anmuth said in a research note, but Netflix has an advantage with its core business of mailing out DVDs.

"We don’t believe any competitor at this point would ‘go backwards’ and build out a DVD-by-mail business, even though it has been a significant factor in subsidizing and enabling Netflix’s shift to streaming," Anmuth said.

Netflix subscribers pay a minimum of $8.99 a month, and 61 percent of them are streaming content online, the company said.

"Ultimately (the business) will be only streaming, but that is several years away, and we’ll still be delivering DVDs for 15 or 20 more years," Netflix spokesman Steve Swasey said.

Critics once knocked Netflix’s streaming service for lacking popular movies, but the company said a deal reached last month with the Epix pay TV channel would bolster its content.

The five-year Epix deal, worth almost $1 billion, makes Netflix the exclusive Web-only distributor of films from Viacom Inc’s Paramount Pictures, Metro-Goldwyn-Mayer Studios and Lions Gate Entertainment Corp, including new releases 90 days after their premium pay TV and on-demand debuts.

Analysts say the cost of acquiring content could cut into Netflix’s margins and those of other companies that try to expand into streaming. Meanwhile, Netflix will continue to grow, they said.

"Netflix has a very solid early position," said Marianne Wolk, senior analyst with Susquehanna Financial Group. "Their service is compelling. The advantage is that they have an excellent recommendation engine, and it’s one of the best user interfaces for finding films that you like."

(Additional reporting by Jennifer Saba, Editing by Ilaina Jonas)

An Apple computer is shown on Google’s company campus in Mountain View, California February 9, 2010.

Credit: Reuters/Robert Galbraith

NEW YORK (Reuters) - Google Inc is in talks with music labels on plans for a download store and a digital song locker that would allow its mobile users to play songs wherever they are as it steps up its rivalry with Apple Inc, according to people familiar with the matter.

Google’s Andy Rubin, the brains behind Google’s Android mobile operating system, has been leading conversations with the labels about what a new Google music service would look like, according to these sources.

Rubin, Google’s vice president of engineering, hopes to have the service up and running by Christmas, two of these people said.

The music industry hopes to benefit from a battle for control of the mobile phone and computer desktop between Apple and Google as both technology giants go head-to-head in a wide range of media and consumer technology areas including online TV and movies, mobile phones, software and even advertising.

Music is the latest area they are likely to compete in even though Apple had a major head-start on Google, with its 7-year dominance through iTunes Music Store, which accounts for 70 percent of all U.S. digital music sales.

Google has yet to sign any licensing deals with major labels, these people say, but it hasn’t stopped the labels getting excited about the prospect of its entry to the business and what competition with iTunes could mean for the industry.

"Finally here’s an entity with the reach, resources and wherewithal to take on iTunes as a formidable competitor by tying it into search and Android mobile platform," said a label executive who asked not to be identified. "What you’ll have is a very powerful player in the market that’s good for the music business."

Sales of Android-based phones have rocketed in recent months to 200,000 a day, according to Google, matching the hugely popular iPhones and iPads from Apple which are based on its iOS technology.

"There’s no dearth of music available on a computer right now, but Google can still have an impact on the cellphone or any connected device," said Larry Kenswil, a former Universal Music executive who is a counsel at Loeb & Loeb.

The labels have been grateful to Apple for helping to kick-start digital music sales with iTunes in 2003, but they have been become increasingly concerned with the control the Cupertino, California company exerts over everything from song pricing to digital formats.

Music executives have long believed having other competing powerful digital music retailers could help expand the market.

While digital album sales are up 13 percent year-to-date from the year-ago period, sales of individual songs have held steady, according to Nielsen SoundScan.

"Google has a wealth of data, from YouTube, as well as from search, that can inform on what people are consuming and looking for music wise," said Simon Wheeler, head of digital at London-based independent music company Beggars Banquet.

But just being big won’t be enough even for a company of Google’s size and capabilities. Leading online retailer Amazon.com Inc launched its MP3 store in 2007 but still only has just over 12 percent market share.

"We’re cautiously optimistic because Google has great scale and reach but doesn’t have a track record in selling stuff," said another label executive who declined to be named as the talks are still ongoing.

A Google spokesman said the company has nothing to announce at this time.

MUSIC IN THE CLOUD

Connected devices like Apple’s iPhone and iPads or Google’s range of Android-based phones will be the next battlefield for music, say various industry watchers.

Labels have been hoping that the introduction of new cloud-based music services from Apple and Google would be a major boost for winning over consumers who want to be able to access their music libraries, discover new songs and make impulse purchases wherever they have Internet access.

Apple bought cloud-based music company LaLa Media last December and closed it in April, leading observers to expect the launch of an Apple-branded cloud service. But on Wednesday Apple unveiled a social media enabled-version of iTunes, leaving some executives a little underwhelmed for now.

Perhaps not by coincidence Google also bought a remote media company called Simplify Media in May and has also promptly closed it down. It has yet to announce any plans for Simplify.

"If they get it right it will hasten the transition by consumers from music you have to own to music you need ubiquitous access to," said Ted Cohen, a former EMI executive who runs TAG Strategic Partners.

On Nasdaq, Google rose by $1.69 to $462.02 and Apple was up 64 cents at $250.97 late Thursday afternoon.

(Reporting by Yinka Adegoke; Editing by Richard Chang)

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