Would Google be crazy to buy Youtube. No doubt about it. Moronic would be an understatement of a lifetime.
Would Google be stupid to do a deal with Youtube. Not at all. Would Youtube be smart to do a deal with Google. Thats a different answer.
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.
So for Google to say, we will pay youtube Xpct of our revenue we generate from your site as long as you generate X number of users/views/minutes watched, whatever metric they choose. That would be a great deal for Google.
Why ? Because it would get them the opportunity to become the leader in selling video/rich media ads and to enhance their publishing/ad sales to incorporate video for any site that wants to use Google. Of course Google would build in protections against getting sued into oblivian. Their many lawyers will take care of that .
The real question is whether this is a good deal for Youtube. Of the surface how could it not be, right ?
They could be playing Google off against possibly MicroSoft and Yahoo who both will want to dominate and publishing video ads across the web to get the best possible guarantees and percentage of revenue.
They could be pushing for promotional support , maybe even becoming the defaul video for Google or whoever they partner with.
With Google, they may be probing them to host all those videos in the super secret server farms that host Google servers and probably some black helicopters as well.
Like Myspace, they could walk away with hundreds of millions of dollars. Five or Six years, $1.6billion in guaranteed advertising reveue from Google ? Not inconceivable as a deal. Plus it meets the Youtube criteria of not wanting to sell the company.
But that price is probably too high if the Google/Myspace deal already includes video because Google/Mysapce video alone can establish Google as a video ad outlet. ( Since that deal was done before Myspace really pushed into hosting its own video, its hard to know.).
But then its possible that Google wants to pre empt any competition and will pay whatever it takes to lock up both Youtube and Myspace.
What a great deal either way for Youtube, right ?
Maybe not.
300mm a year in revenue doesn't go as far as it used to. Youtube now becomes a deep pocketed target. Sure, they can try to work out deals with the biggest media companies, but those deals are going to be ultra expensive. If not monstrous up front payments, then huge percent of revenue hits. But that will be the easy part.
This is where the long tail comes back to bite you in the ass. There aint no compulsory license for video. You got to work your way up the long tail , one at a time. Licensing each. Thats an impossible job, which is why the webcasting and related industries have fought for compulsory licenses.
Its not the big companies they would have to worry about the most. Its the little guy. Youtube would get sued by the thousands of rights holders who will seek the maximum amount per download from Youtube for their content.
This is where Youtube is really screwed. Youtube doesn't stream. They use progressive download. So the damage claims are going to be per download and enormous.
Its obvious what Youtube is trying to do. They are trying to push the obligation of licensing rights out on the rights holders by hiding behind the Safe Harbor rules of the DMCA. Make the rights holders find the copyrighted materials out of 60k uploads a day rather than make Youtube find the copyright owners of the materials uploaded.
As I have said many times, that shit aint gonna fly. I dont think so, and neither does a long, long list of copyright owners. We arent just talking big media companies. We are talking fake a lawsuit companies.
Dont think for a minute that there wont be lawyers writing songs, having their buddies perform them, and putting them on Youtube, jerry rigging the number of views via any number of easy to do processes and then suing Youtube over it.. It will be the Youtube version of shareholder lawsuits. They wont need no stinkin take down notices. They will claim that Youtube isnt a hosting company, they are a media company with licensing deals, getting paid for advertising around video. Just like every other media company
Could Youtube collect enough money to fight it out and pay out enough ? Maybe. But the thing about these lawsuits is that they keep coming and coming. THe way Youtube currently does things, they would NEVER end.
Which leads to this question. Why wouldnt Youtube start policing for copyrights ? If they dont have a license, dont put it on the site. Simple. Takes away 100pct of the risk. Makes everyone happy. Dont you wonder what scares them away from doing this ? Sure they only have 60 people, but hey, one of the biggest challenges of running a business is paying for growth.
If the videos are no longer than 10 minutes each. Thats 600k minutes per day. 10k Hours max. You can hire 1000 people in a datacenter to review videos. 1k people, 10k with overhead per month. (if they buy US rather than overseas) Thats 10mm per month. x 12 months, thats 120mm . And thats if they want to get the videos posted as soon as they are re encoded . Add a delay and the number of employees drops dramatically. Plus, as they license content, the number of videos under license should match the growth in video, so emp count can remain constant.
If User Generated Content is as popular as everyone says it is, whats the risk for them to respect copyright and only host safe content on the sight ?
And for what its worth, everything I just said applies to every video hosting site, not just Youtube.
The copyright shit is going to hit the lawsuit fan. Personally, I think the site that has this handled first is going to be in a great position to leapfrog those who dont. They can be out enabling great user created content and building traffic while everyone else is fighting lawsuits
Some thoughts on Youtube and Google
Reader Comments
(Page 1)2. For more on YouTube and Copyright watch this movie:
http://www.youtube.com/watch?v=BX3LDqM-ehs
Posted at 7:29PM on Oct 7th 2006 by Hanan Cohen
3. ummm ... I'm assuming you realize that google video and youtube are competitors. if so, why would google make a deal with youtube, rather than tweaking it's own video service and try to increase thier market share. You tube btw, is not the market leader, MySpace Video is.
Posted at 7:59PM on Oct 7th 2006 by JAm
4. Hanan,
Oh, the movie has gone.
Posted at 8:15PM on Oct 7th 2006 by kenji mori
5. Thanks for the thoughts Mark,
I agree, Google gets eyeballs and oodles of stock, YouTube gets dollars to pay for bandwidth and legal fees and all the listener attention dedicated to long tail content will be pushed aside by short head content. Then the Internet becomes network TV and YouTube fades away.
Posted at 8:26PM on Oct 7th 2006 by Randy Blumhagen
6. I still think that you are right Mark and that You Tube is a bad buy. The legal issues are to great to take on. I think this is the turning point for Google. They are sarting the Microsoft - Yahoo - IBM downturn and the move to purchase You Tube will be remembered as when they headed south.
Not to say that Google is not a phenemenon that will continue to be great, But the culture has changed and the dominance has gotten to them.....
What do you think?
7. Just move the business to Asia where copyright law is ignored.
Posted at 9:41PM on Oct 7th 2006 by fast eddie
8. Maybe I'm missing something here, but you keep talking about how YouTube is going to get sued as soon as they get deep pockets, but doesn't Google already have the same issue with their Google video service? How many of the clips uploaded there are karaoke versions of NSync? Better yet isnt' MySpace AKA Fox also hosting their fair share of copyright infringement. How is are they not doomed to failure from these "fake" lawsuits and why haven't we seen any filed to date?
When the BetaMax first came out content owners liked to point out that people could use it to pirate films, but the courts ruled that it had significant non-infringing purposes. There may be quite a few bad apples on MySpace, Google Video and YouTube, but unlike Napster there is a lot of user generated content there as well. As long as YouTube keeps taking down the videos I don't see how they are anymore at risk then the company that is providing them with Web Hosting services.
Posted at 10:22PM on Oct 7th 2006 by Davis Freeberg
9. Most expensive domain purchase ever:
YouTube.com redirect to video.google.com. I'm serious: If you've got the cash available to completely buy out a competitor why wouldn't you?
Also, Mark's point is valid.. until now, no one has been given a signifigant amount of money for a site that hosts user-generated media. Those dollar signs start to look like a litigious bullseye almost overnight.
Fox brought on Myspace Video after the buy, Google has been pretty good about taking down/not approving licensed content (read: tv shows, movies, etc). This deal will turn a corner that won't be pretty for the whole industry.
10. Rebuttal to Mark Cuban: Some Thoughts on Youtube and Google
I read Mark's blog posting Some Thoughts on Youtube and Google and I disagree with Mark's view. Mark believes that Google (Nasdaq GOOG) would be moronic to buy YouTube. I say they would be moronic not to buy.
There is only one #1 player in any given market as Internet entrepreneurs and investors have discovered with the outsized valuation given the Google. Leaders like MySpace and YouTube deserve significant premiums because they not only are synonymous with the product being delivered (MySpace/social networking, YouTube/video sharing, Google/search), but users gravitate towards those services because of their reputation. It takes no convincing to get a user to try MySpace, YouTube, or Google because chances are someone they know already uses it - and recommends it.
An advertising deal with YouTube would solidify Google as a #1 in video ads, but a buyout would solidify Google as the leader in Web 2.0 video.
Pop Quiz (Multiple Choice). Select the best answer below.
What do you want to be when you grow up? Do you want to be
* A) WPP Group Plc (selling advertising) (Nasdaq WPPGY)?
* B) Viacom, Inc. (broadcasting content) (Nasdaq VIAB)?
* C) Comcast Corporation (the leader in cable television, content and delivery) (Nasdaq CMCSA)?
http://mrwavetheory.blogspot.com/2006/10/rebuttal-to-mark-cuban-some-thoughts.html
Posted at 5:20AM on Oct 8th 2006 by Mr Wave Theory
11. Mark, I really hope you read this message in particular because I think you are in the wrong on this one. How can you say that Google is crazy for buying YouTube? There is one very big element here you are ignoring, and it is technology. Technology that knows something that is copyrighted from something that isn't. Do you remember the early days of Google Video? When Google used to record live television and make it searchable using telecaption? What makes you think that they ever stopped recording ALL of live television? You see, by recording ALL of live television, they create a database, and any video uploaded could -- and most likely will -- go through a filter that automatically detects if this video is a COPY of a live TV feed recorded by Google. You see, Google is quite possibly the company with the most advanced A.I. on the planet. And the fact that you cannot comprehend this bewilders me.
But hey, you're entitled to your opinion.
Posted at 10:29AM on Oct 8th 2006 by Mariano
12. I feel a bit hestitant to say this publically, but this whole "leak" sounds fishy to me. Perhaps it's legit, but it is conceivable that this rumor has been planted in the media on purpose with the intent to drive up bidding and/or force people on the sidelines to rashly jump in. In particular, I could see it trying to bait Viacom to make an offer since Viacom has several times over and over that it will not allow another Internet hot property to pass them by again.
Think about it. Seems very convienent that it was leaked on a Friday to give people the weekend to get worked up into a lather about the whole thing. Plus it seems like the "source" of the rumor was from TechCrunch - which I enjoy the blog - but it seems like the WSJ referenced TechCrunch and then NYT referenced the WSJ article. So I'm not sure how many original sources there were to this story, just one media outlet referencing the other.
We'll see how it pans out, but I'm suprised that there isn't more debate about the authenticity of this rumor.
Posted at 10:50AM on Oct 8th 2006 by Chris D
13. Mark is right on target saying Google would be crazy (moronic) to buy YouTube, but brilliant to do an exclusive advertising deal.
Why buy a lawsuit when you can just make an exclusive advertising deal and get everything you want...more traffic on which to sell ads?
I wrote a blog on this today with lessons I have learned over the years from many acquisition discussions...on both sides of the table. http://dondodge.typepad.com/the_next_big_thing/2006/10/buy_a_lawsuit_o.html
14. Mark,
You make some good points, but I disagree with your assessment about Google being "moronic" to buy YouTube. YouTube is the fastest growing site in the history of the web. Plain and simple, zero to top 10 in a year. Owning that for $1.6B is probably worth the risk.
YouTube is decidedly NOT Napster. There are videos up there that could certaily be construed as copyright violations but they are increasingly policed by the YouTube community and are methodically taken down per DMCA. My hunch is that the vast majority of their traffic is coming from user-generated video with which YouTube takes and aggressive stance in their TOS (very similar to what we did with Webshots).
Their position is increasingly strengthened with every marquee distribution deal they do AND every instance of marketers for marquee copyright holders who on their own are using YouTube to market films, tv shows, etc.
Eventually, YouTube probably should be more proactive in policing. With Webshots, we were able to review 500,000 to 1 million photo uploads per day for pornography and blatant copyright issues. Obviously, EBay has managed to tackle difficult policing issues on a large scale as well.
That said, my primary issue with a $1.6B price tag is the lack of revenue, because right now, every video shown by YouTube costs them money, period.
So, back to the deal. I think "bold" would be accurate. "Crazy" or "moronic" and you are losing credibility as a level-headed analyst.
15. Mark I'm thinking if this deal is real, Google solves the bandwidth problem for YouTube. The copyright thing I haven't heard as much on, and you do raise some good points. However I think there's enough draw to the original content to sustain YouTube even with all the copyright stuff taken way. Obviously full on movies or tv shows have got to go.
But maybe YouTube can somehow keep the grey area stuff like music videos and commercials. The entertainment companies should be thanking YouTube for showing old 80s videos and commercials from the 70s, frankly.
Posted at 12:02PM on Oct 8th 2006 by Webomatica
16. "sue me and you're not getting a virgin" (quoted from dr haeberle today on an m&a simulation)
that's likely what google's position is as they look at the potential acquisition.
Posted at 12:41PM on Oct 8th 2006 by JL
17. Mark -
You are, quite obviously, much smarter than you look on YouTube TV shows.
Posted at 1:18PM on Oct 8th 2006 by Joe Hunkins
19. I think the law of big numbers is starting to affect GOOG and this could be the first sign of their growth slowing down.
Posted at 8:48PM on Oct 8th 2006 by WallStreetSelect
20. You know what I love about this blog?
I love that you are honest when presenting yourself. You don't try to make things sound too smart, you swear if you have to - this is really cool to read for someone who is 22 and doesn't want to be a typical suit in a corporate world - it is like a look into what the OTHER way is like - your own way, not the force fed typical way.
Thanks man, very good stuff.
Posted at 6:25AM on Oct 9th 2006 by Dennis
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1. All Google is going to do is to throw a Google search-bar on the YouTube site, and with the traffic generated from that toolbar they will pay for their investment within a year. They'll keep YouTube a separate entity, this way when YouTube gets sued to oblivion, Google will just be a shareholder, and won't be exposed to the liability. The traffic + PR generated from this will be worth $1.6B to Google, without a doubt.
Posted at 5:56PM on Oct 7th 2006 by Steven