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
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Reader Comments
(Page 2)22. Very interesting assessment, Mark. It looks like we'll know whether or not the deal is happening within a matter of days.
Techcrunch is reporting that the deal could be announced this week:
http://www.techcrunch.com/2006/10/09/will-googletube-be-announced-this-week/
Posted at 8:29AM on Oct 9th 2006 by Kat Jacobs
23. Just like MySpace, YouTube has a website that is in efffect owned and controlled by the general public. I'm guessing the fear of losing web traffic as a result of policing copyrighted content is what keeps them from ramping up security on their website. They obviously work hard to keep graphic porn off the site, why not work just as hard to tag other content?
When the inmates (viewers) run the asylum, you can get yourself in deep Sh*t.
Posted at 8:41AM on Oct 9th 2006 by Clark
24. Mark,
Interesting pts. I think one solution (not the only one) for YouTube is to buy a small social network that differs from MySpace and Google, but combines both and grow it. Use it as a platform to grab a niche market. No one would see it coming. The new user base would be ecstatic and by the time the law suits start flying they bought themselves 6 mos to a year with this new audience (by overwhelming them, happily) to figure out the legal side of things.
I have some other ideas, we should talk. Thanks for your time.
Joe
25. It seems you may be right that policing is the only way to shut down legal issues... however, it's not nearly as big of a human-intensive problem as you were calculating.
By using hashing and other tricks, a few good coders could make nearly all violating videos be detected instantly, so the size of the problem would be much smaller. As less and less copyrighted videos make it through the cracks, people will be far less inclined to even try.
26. While people are clicking on the copyrighted material, the news stories, success stories and new business opportunities in this field seem to be coming from the independents.
In otherwords, there is a change in thinking going on here and the Paris Hilton superstardom is becoming watered down, however slowly, while people are looking towards what is new and exciting that can rise up from the fringes.
Apparently Amazon makes more money selling long tail books in single numbers than they do from their most popular sellers.
Thus, for Google to take YouTube is for Google to OWN online video, just as they OWN online search.
There is a lot more going on at YouTube than just copyrighted material. There are people there.
27. In new news, YouTube and Vivendi have reached a deal::
http://money.cnn.com/2006/10/09/news/companies/youtube_universal.reut/index.htm?section=money_topstories
29. The media companies including NBC should get their heads out of their asses. How else do you think the 18-49 age group flock to their flagship programs? Helloooooooo, how else do you think we get buzzed
Posted at 10:58AM on Oct 9th 2006 by YouTuber
30. Google is smart. It is investing in everything it could to dominate the broadband ad spaces !!!
Google also in $230 MILLION investment for BROADBAND over Powerlines !!!
re: http://broadbandoverpowerlines.blogspot.com/2006/05/google-gs-sensustxu-ge-earthlink-put.html
Posted at 11:10AM on Oct 9th 2006 by broadband power line
31. FYI -- YouTube just signed content deals with CBS, Vivendi Universal and Sony BMG. Looks like the talk of YouTube's legal demise was strikingly premature.
Posted at 11:26AM on Oct 9th 2006 by Brian
32. A few things: 1: If I owned Youtube I would sell! Maybe change is not happeing as fast as the pre-dot com crash but change happens. Remember Netscape? What seems like an invincible online company soon is surpassed by a new upstart. I remember using numerous search engines, in the year 2000? Where are they now?
2: Content will always be subjected to copyright scrutiny; what about 'post a secret'? Are all those people that 'freely' submitted their darkest secrets still excited to see them not only online but now in book-form? Initially, people like to have a few minutes of fame such as seeing their photo in the newspaper, taken at some event they attended. They even ask if they can 'buy' an extra print to send to their families. But once they see that same photo being used to actually 'promote' the event they switch gears and either think they are being taken advantage of, and sue or think they can make a case and sue. Companies that keep it simple and don't exploit the user's content will be safe. For awhile...
33.
Mark-
Thanks for explaining the possible motivations and (possibly) unforeseen pitfalls associated with this buy...especially the copyright pitfalls that may manifest themselves in the future.
It looks like you've thought it through...
You've got the capital... I think you should start up a video-sharing service of your own :)
34. Looks like this discussion is already obsolete:
Google just bought YouTube:
http://news.yahoo.com/s/ap/20061009/ap_on_bi_ge/google_youtube
35. And then again, maybe they just want to buy this little competitor, shut their ass down and gobble up their users into their own video site. Kind of like what Yahoo did with some little Internet broadcasting company in 1999. With the realization of the substantial profits that media companies can make by sharing ad revenues with the site hosting their copyrighted content, I seriously doubt that anyone with this size user base is going to be sued into oblivion. We're talking ≤ 10 minute clips here, not movies or TV shows. Universal went from wanting to sue the dicks off Youtube one month ago to jumping on the ad revenue sharing train today with the likes of Sony. Laws will be rearranged if not changed to protect new media in this milieu. (Yes, I said it. Milieu!) eBay is a prime example. The copyright merchandisor is just as responsible for policing its own crap on the auction site as eBay is. Haven't seen any successful cases won against eBay from Tiffany's or Louis Vuitton, have you? As long as they continue to make a serious effort in providing the tools for copyright holders to police their own merchandise, eBay is the good guy. And, IMHO, I think the very same will hold true for video networking sites - as long as they continue to make an effort to help police the policies AND strike deals with the majors - they're going to fend off questionable legal issues.
Posted at 3:36PM on Oct 9th 2006 by Jeremy
36. Smart buy. Google is looking at what consumers want; after all it is the consumer who is making big media conglomerates jitter, not the companies the consumer reside in. In short, consumer demand is SHOUTING OUT: we want the split second access, we want the entertainment and we want it NOW. This does not fit with the past mind set of scheduling. A network wants to broadcast when they want to broadcast, a consumer wants to watch when they can watch…oops, folks, we have a DISCONNECT!
As for the legal side, anyone that knows about merger and acquisitions can tell you that the purchaser does not always have to take on liabilities in all cases. Furthermore, due diligence teams at Google are pretty aware that internet law and overall structure is in the midst of being built. Believe it or not our world is still in the wild wild west when it comes the complex world of cyber-space...
Posted at 3:38PM on Oct 9th 2006 by Sandy
37. Crazy morons to the tune of $1.65 billion; as of 430pm Eastern time. Should be fun to watch if nothing else. Anyone want to split a sixer?
Posted at 3:40PM on Oct 9th 2006 by Ben K.
38. the deal went through, and wall street is voting with their money that they like it, pushing youtube up 35 points or nearly 10% since the rumours started, as well as up a couple points after hours on this announcement. the buyer in big big purchases usually doesn't usually rise on the news (the company being bought out does), but Google did. mark cuban is saying serge brinn, who has had more success than all but a few on the planet, and all of wall street is wrong, but mark cuban is right. that's a tough sell sir, and i'm not buying. in interest of disclosure, i'm a trader and bought youtube.com 3 days ago, and am up 30 points, looking for 20 more, than another 50. that would be a modest 25% rise from entry (from 400 to 500)
Posted at 3:50PM on Oct 9th 2006 by brendan
39. 1.65 BILLION....not bad since You Tube has been around all of a year and a half...67 employees...they could have made billions more going public....maybe they agree with Mark and took the quick money before trouble....
Posted at 3:56PM on Oct 9th 2006 by acetrader
40. Ok, so now it's done, all points are moot. Now the real question is, how will Yahoo and Microsoft respond? Both were trailing YouTube and Myspace (Microsoft really isnt in contention, but can't ever be counted out) in the online video market, now it seems like Google has another area where it can become a behemouth. And an even bigger question is now that YouTube is a lucrative target, can they sign content deals fast enough to keep the Media companies from busting them in the teeth with lawsuits? I for one am a little sad that we are about to see a complete metamorphais of a small upstart that was barely making a dime to a homogenized MTV-esque commercial for everything from Ford Trucks to deodorant. I think it's great for the founders, but this innovation through aquisition (or atrition of the ememies) is something that i think ends up hurting the end user. Microsoft really perfected it, but now Google is taking it to the next level.
Posted at 3:56PM on Oct 9th 2006 by Danny
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21. Personally I feel that given that GoogleVideo and YouTube are direct competitors in this sector right now - there are some anticompetitive issues here.
If Google buys out YouTube as planned I am concerned about the direction which YouTube will head in. If I had to choose at the moment, I'd rather use YouTube than GoogleVideo. That's a personal preference but I find it easier and less cumbersome to use.
But if Google get a hold of it, it may get taken down the wrong path. But hey, Google have done some cool stuff (GoogleEarth for instance) .. so maybe it won't be such a bad thing.
Posted at 6:34AM on Oct 9th 2006 by Sean Williams