Google has agreed to buy video sharing Web site YouTube for $1.65 billion in stock, taking a dramatic leap forward in its effort to become the go-to site for Internet video both from commercial sources and consumers.
The deal is expected to close in fourth quarter 2006. YouTube, which first saw the light of day as a start-up venture 18 months ago, will retain its independent identity and will continue to operate from its headquarters in San Bruno CA.
“The YouTube team has built an exciting and powerful media platform that complements Google’s mission to organize the world’s information and make it universally accessible and useful,” Google CEO Eric Schmidt said in a statement. “Our companies share similar values; we both always put our users first and are committed to innovating to improve their experience. Together, we are natural partners to offer a compelling media entertainment service to users, content owners and advertisers.”
“Our company has played a vital role in changing the way that people consumer media, creating a new clip culture,” YouTube CEO and co-founder Chad Hurley said. “By joining forces with Google, we can benefit from its global reach and technology leadership to deliver a more comprehensive entertainment experience for our users and to create new opportunities for our partners.”
The value of the deal underlines the growing importance of social networks and user communities on the Web; Google is paying about three times the $580 million News Corp. agreed to pay for social network site MySpace in July 2005.
The deals are different in an important respect: While MySpace aims to link members to one another by letting users post their own content, YouTube works by making it easy both to post video and to find, rate and share existing clips.
Google might be able to apply its search technology to making video search more thorough or efficient. In a teleconference after the announcement, Schmidt said Google engineers had identified some ways they could make YouTube more easily searchable. “We don’t lack for a set of ideas,” he said. “Most people believe this is just the beginning of an Internet video revolution. And there will be many ways in which that video gets uploaded, monetized, and copyrights respected.”
The purchase should also complement Google’s own video channel, which has struggled to amass an audience as big as YouTube’s. In July, comScore rated YouTube third in traffic among Internet video sites, following Yahoo! and MySpace. Google Video was ranked fifth. Shortly after that, Google added a link to its video site to the Google Search home page.
Problems down the road include finding a workable ad model for YouTube; advertisers have shown them selves skittish about being associated with some of the quirky consumer-generated content that has proven most popular on the site.
Both Google and YouTube have shied away from showing “pre-roll” video ads — short ad clips that appear before running the video chosen by the user — saying that they tend to mar the user experience. Google has experimented with showing click-to-play video ads on its Ad Sense publisher network. YouTube also has plans to test permissioned video ads that users can choose to play, then ad ratings and comments. The site has sold video ads on a cost-per-thousand impression basis to Warner Bros. Records and Fox Broadcasting.
In September, marketing research firm eMarketer predicted that advertisers will spend $650 million on Web video advertising, revising its estimate for that activity upward precisely because of the “media frenzy’ created by the popularity of sites like YouTube.
There may also be copyright troubles in the works, for YouTube and many other video Web sites. YouTube doesn’t own the copyright for its content, and at least some of its “cool factor” has derived from the fact that users can find clips pirated from TV and movie material that may not have been properly permissioned by the creators.
Copyright concerns led Internet entrepreneur Mark Cuban to tell a group of advertisers in late September that only a “moron” would purchase YouTube. “They are just breaking the law,” he said. “The only reason [YouTube] hasn’t been sued yet is that there is nobody with big money to sue.”
Yesterday YouTube announced a deal with CBS that will test a new advanced content identification architecture for the site. The system will allow CBS to locate copyrighted CBS material on YouTube and choose either to have it removed or to share in any advertising revenue placed against the content.
At the same time, YouTube announced a similar deal with Universal Music Group, which earlier this month accused both MySpace and YouTube of copyright infringements to the tune of “tens of millions of dollars”.
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