Tuesday, October 10, 2006

More on the Google/YouTube Deal

Okay, I'm back home again and cruising the news sites for information on the Google buyout of YouTube. Lots of interesting angles to consider.

Turns out the $1.65 billion price tag is all in stock. TechCrunch reported on a conference call Google hosted Monday afternoon about the deal. When asked why the deal was done in stock, Google's chief counsel responded that the stock deal made it tax-free to YouTube's stockholders.

Both sides stressed the similarity between the two companies' cultures. As an aside, Google's founders are thirty-three years old and the YouTube founders are about six years younger. In talking about cultural similarities, Chad Hurley (one of YouTube's founders) said that Google's ad platform will dovetail perfectly with YouTube's video-sharing site.

According to the Associated Press, "The two companies even share a common financial bond: Sequoia Capital, an early Google investor that owns a roughly 30 percent stake in YouTube. Menlo Park-based Sequoia remains a major Google shareholder and retains a seat on the company's board — factors that might have helped the deal come together after just a week of negotiation."

Questions remain. Two months ago, Google signed a $900 million deal with MySpace (owned by Rupert Murdoch's News Corporation) to provide advertising and search to MySpace and other News Corp sites.

This morning, Mark Cuban suggested that "if Google went to Youtube, like they did Myspace and said they would pay them a minimum of hundreds of millions of dollars a year in exchange for letting Google sell text and video ads on Youtube, as long as there were performance requirements it would make perfect sense for Google." Cuban did not believe Google should purchase YouTube outright because of the downside of potential copyright infringement cases. Clearly Google didn't take his advice.

Of course, YouTube has been racing around like a whirling dervish trying to make deals with some of the largest of the content providers who have been complaining about copyright infringement. Last month YouTube struck a deal with Warner Music. USA Today reported Tuesday morning that YouTube made "deals with CBS and two major music labels . . . Universal Music Group and Sony BMG Music Entertainment."

More issues: MySpace and YouTube regard each other as competitors. According to Hitwise, at the end of a recent three-week period, YouTube accounted for 27% of daily market share based on visits. MySpace Videos accounted for 13% while Google had a jump to nearly 8% and Yahoo's Video Search was about 3%.

You gotta wonder what Google is telling MySpace/News Corp.

According to the Multichannel News, last month, News Corp's COO "estimated that 60%-70% of YouTube’s traffic comes from MySpace." He said that while "MySpace’s video efforts are small at the moment, that could change" and that News Corp was considering "creating a video component to its MySpace social-networking Web site that could rival the wildly popular YouTube."

TechCrunch's Michael Arrington points out that MySpace could deal YouTube a heavy blow by cutting off direct access from MySpace to YouTube. In addition, Fox (another division of News Corp) is "the owner of much of the copyrighted material contained on YouTube."

And we still have hundreds of other content providers who have copyright claims against YouTube. TechCrunch says, "some estimates suggest that up to 80% of YouTube’s traffic is generated from copyright infringing content."

Don't you think Google's deep pockets will be attractive to any content owner who finds his/her material being used on YouTube without permission?

Has Google made a bold leap to seize control of the video online market, or do they have a tiger by the tail?

Stay tuned.


Hyperbole said...

Hey Maya, you are taking my head out for a spin! In these last 2 posts, you keep mentioning about a Yahoo/YouTube deal while it's really Google which is paying up. Correct them please.

Maya said...

Hyperbole: Thanks for catching the typos.

That's what I get for posting in a hurry. Correction done.

Emjay said...

People should always take Mark Cuban's advice.

He may act goofy, but he's not.

(at least not totally)

Susan said...

I think Google's turning into another 800-pound gorilla, but that's just me.