The discussions are believed to centre on the nature of the business model and how it will balance free viewing with ad revenue and revenue for the labels and their artists.
YouTube's ambition is to have "every music video ever created" up on the site, according to its co-founder Steve Chen.
He said: "Right now we're trying to very quickly determine how and what the model is to distribute this content and we're very aggressive in assisting the labels in trying to get the content onto YouTube."
YouTube plans to allow its community of users to add videos to their own profiles and write reviews about them, believing this will differentiate its site from Apple's iTunes store and Yahoo! and AOL's music features.
The site's popularity over the past year has been driven by amateur videos posted by individuals around the world. With it now claiming to account for 60% of all videos watched online and 100m views a day, established media are seeking to partner with the California-based start-up.
Talks with the labels come as TV companies begin collaborating with the site while policing any use of copyrighted material without permission.
US broadcaster NBC is now promoting its content on YouTube after ordering it in March to take down clips of a spoof hip-hop video 'Lazy Sunday', originally broadcast on 'Saturday Night Live'.
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