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Google makes video play with YouTube buy
October 9, 2006
When Cuban delivered his speech to a group of advertisers, he said the risk of getting sued was simply too high. All you need is one mean lawyer with a solid case to make life oh-so-difficult. And let's not forget--YouTube is a company that depends upon contributed video uploads for its survival.
To the delight on the Wall Street crowd, Google announced Monday it would pay $1.65 billion to buy YouTube. If there's litigation in the future, Google's not sweating. With its fabulously deep pockets, the company knows it has the wherewithal to defend itself against annoyance lawsuits for the next millennium. In the meantime, management believes there's a way to mesh search monetization with the leveraging of social networks.
Is it possible that Schmidt, Google's CEO, blew it so badly?
I pinged Cuban, who said he hasn't changed his opinion. (Here's a link to Cuban's expanded comments on the blog he keeps).
Cuban's a clever guy and he knows how this business operates. In 1999, he sold Broadcast.com to Yahoo for more than $5 billion. That was a ridiculous sum for a money-losing dot-com outfit, but during the heyday of the Internet bubble, companies did deals to "acquire eyeballs." Tech companies swore they would never repeat that mistake (more about that in a moment).
Yahoo deserved what it wound up with--which in this case wasn't much. Cuban was smart to take the money and run. (For the record, the people managing Yahoo were so clueless that they paid another $2.8 billion to buy GeoCities the same year.) Yahoo's sundry stupidities paled in comparison next to Terra's $12.5 billion purchase of Lycos and @Home's $7.2 billion buy of Excite.
Things are different now, right? So the say the experts.
Schmidt obviously thinks this deal is anything but stupid. During a conference call with reporters and analysts, he even suggested this was the beginning of an Internet video revolution. YouTube co-founder Chad Hurley was no less enthusiastic when he declared that the nature of entertainment was changing.
But it's too early to work ourselves into another hyperventilating lather. Right now, this is a PowerPoint presentation with more questions than answers. Something about these grand predictions always leaves me flat. Talk all you want about potential revenue synergies, but haven't we seen this movie before? YouTube indeed may become the future of contemporary entertainment, but right now it's still a site where I goof off and watch dumb cat videos.
If Google's gambit eventually does pay off, it surely will fit with the times we inhabit. With a salute to the late Sen. Daniel Patrick Moynihan, the dumbing down of America is hardly news anymore. Fact is that much of the contributed material you'll find on YouTube makes for a monumental waste of an evening. Is it any coincidence that YouTube's become one of the most popular Web sites in cyberspace?
Aren't they only giving the people what they want? Sure they are. Schmidt, Hurley and the rest of their management may possess a better crystal ball. If Lonelygirl15 is a harbinger of societal tastes, Google stands to make even more billions in the months and years ahead.
At that point, Schmidt will rank as the wealthiest moron in history.
Biography
Charles Cooper is CNET News.com's executive editor of commentary.
See more CNET content tagged:
Mark Cuban, Eric Schmidt, YouTube, entertainment, Google Inc.
35 comments
Join the conversation! Add your comment
So, lets stop listening to him, k?
Google will benefit for the following reasons:
1. Google search box on every YouTube page will only help improve Google's search market share with direct benefit to bottom line.
2. Adwords alongside every video.
3. % of revenue from actual sales of videos.
The risks are manageable and the reality is that the major content holders will not want to sue the company with 60% market share of the online video market. GoogleTube will be the fastest way for the major studios/networks to get their content in front of a major audience and have no reason to sue Google as it will only jeopardize their relationship with them. Nothing deters law suits like risk of cannibalizing a potential revenue stream.
This acquisition came at a bargain price compared to the Google/Myspace deal and they will have a majority stake in this market in a rapid way while diversifying their revenue stream.
Mark Cuban was smart enough to sell his company at the right time. But if he was smarter, he would have actually turned it into a profitable business. Perhaps he can keep his jealousy in check.
Many of the individuals who own the video content might also want to launch their own services. If Time Warner wanted to cut Google out of the picture and possibly create their own more potentially lucrative site they could sue. If you look at the Grokster case as a precedent, You Tube is enabling massive copyright infringement. Even though You Tube promises to remove copyright infringements, this passive, non-active approach would not hold up in court.
Therefore, Google's purchase is only good if the individuals who own the content is being illegally uploaded on You Tube agree to allow it. The problem is, it only takes one content holder to sue and to get an injunction forcing You Tube to remove every copyrighted work from its site that it does not have the explicit permission of the owners to display.
As much as I like watching the home made videos on You Tube, what brings the massive amount of traffic to the site is the copyrighted work, aka. TV show clips, music videos, etc.
One more thing, Time Warner has stated in the past that though You Tube has a lead in market share, the big content owners (such as themselves) will be the real winners, surpassing You Tube in the future with their own services.
I think this purchase has more in common with broadcast.com and Yahoo than you think.
They do have a channel section where hopefully they would allow real feature length stuff with better quality.
It's completely different then broadband.com and the dot com bust because actually people are going to see the site. The Internet was completely mismanaged in the late 90s. You Tube is in top 10 so that's ad revenue.
Google could offer competition for movie makers and give studio time with their money. That way they can keep more of the ad money and have more control over it.
Whatever they do to keep copyright lawsuits at bay will decrease the amount of traffic the website gets. Napster is a good example. Once they blocked all copyrighted content traffic on Napster dropped to nil. The same will happen with YouTube.
So why did he do this deal? Possibly to kill off competition to Google Video. Otherwise it really makes no sense. The cost of maintaining the site and the low amount of advertising dollars they'll be able to bring in makes this another dotbomb. The only way it could be a success is if they bought it for reasons other than eyeballs and ad revenue, because those reasons alone make this a really bad deal.
and we're all here talking about how much of a powerhouse google is
ps - copyright infringement is no different for google video - so that point is daft
Cuban said: When you look at an investment, always look for the sucker. If you don't see one, it's you.
I think a lot of us are still wondering if Google will pull it off in the end. Certainly Wall Street thinks so, either that or it has its head in the sand regarding Google's market cap value of something like $431/share (yow) with not enough revenue to gas up the party plane? Somewhere along the line, common sense should prevail like it did post bubble.
The economics of information are such that the (beneficial) delivery of low-quality versions of content can be extremely valuable to the high-quality content owner. My prediction: al the big fish will do deals with these guys -- its awin-win.
Dotcommism is back. And artists are getting screwed again. What else is new?
"YouTube is a business that has enriched its owners beyond all recognition based on the backs of "user generated content".
Huh?
What is a search engine but an index of "user generated content"? From Google to Yahoo to Ask to Altavista, all search engines have no original content and make money "based on the backs of "user generated content".
Wake up - we have fire now.
- Ravi Jayagopal
Founder, <a class="jive-link-external" href="http://www.WebmasterInABox.net" target="_newWindow">http://www.WebmasterInABox.net</a>
"YouTube is a business that has enriched its owners beyond all recognition based on the backs of "user generated content".
Huh?
What is a search engine but an index of "user generated content"? From Google to Yahoo to Ask to Altavista, all search engines have no original content and make money "based on the backs of "user generated content".
Wake up - we have fire now.
- Ravi Jayagopal
Founder, <a class="jive-link-external" href="http://www.WebmasterInABox.net" target="_newWindow">http://www.WebmasterInABox.net</a>
YouTube has one feature - videos
If I'm looking at goofy videos of people injuring themselves what ads would go with it that would be relevant to me?
I feel that Googles ads are becoming like the original banner ads, clicked on at the beginning because they were new but are now becoming wallpaper.
When I surf a site with Google Ads I just dont even read the block of ads. Same when I use Google to search. The last place I look is the right of the screen.
The only business I see is commercial video clips from the major studios and record companies accompanied by buy now advertising. This is very different to the current ethos of YouTube and may alienate the very audience that has made it popular.
Overcoming this is a huge challenge and one that I dont expect to be resolved in the next 2-3 years as the bigger/wider shake-up in the media industry is sorted out.
Artists will get paid. Maybe a little too little, a little too late. What can you do? Piracy happens.
There's a reason why dinosaurs became extinct - they couldn't adapt.
iTunes did not happen overnight. The same will happen to video too.
It is called evolution.
- Ravi Jayagopal
Founder, <a class="jive-link-external" href="http://www.WebmasterInABox.net" target="_newWindow">http://www.WebmasterInABox.net</a>
*Evolution
*Dinosaurs
*"They'll be the [establish company] of [different media"
*No actual explanations of revenue or profit
Yes, that is EXACTLY dotcommism.
This in nothing else than some venture capital firms making money easy. After all, that's why they have a place on the bord ...
Sure, the studio will "do deals," but it will be for them to present the video THEY want, as they want it. And will people pay to watch video on their computer?
Some people think YouTube will be for video what iTunes was for music. But unless YouTube comes up with a way to watch the video on portable or otherwise offline media, *iTunes* will be iTunes of video.
and everyone knows they would have either screwed it up
YouTube big time or buried it.
(SoapBox - gimme a break)
The people at Google are focusing on the volume of traffic that
YouTube gets daily. You add that to Googles already impressive
traffic volume and your able charge that much more when
selling advertising space.
Aloha! ;-)
would have, and everyone knows THEY would have either
screwed up YouTube big time or buried it.
(SoapBox - gimme a break)
The people at Google are focusing on the volume of traffic that
YouTube gets daily. You add that to Googles already impressive
traffic volume and you're able charge that much more when
selling advertising space.
Aloha! ;-)
( They were only minor typos but they bugged me when read the
post - Cheers!)
Like anyone has time to watch that crap.
trick, if you had time to waste on that garbage (most of it). They
should have simply grown their own video service.
Basically, all they appear to have done is "buy the competition".
Maybe they can make a bunch more bad deals and we can quit
hearing about them already. I'm sick of hearing about Google.
Charles R. Whealton
Charles Whealton @ pleasedontspam.com