Google to buy YouTube for $1.6 Billion?

Okay, some IS nuts enough to buy this. Should have known who it would be...

Google Is in Talks to Buy YouTube
By KEVIN J. DELANEY
October 6, 2006 6:06 p.m.

Wall Street Journal

The latest prize in the great Internet land grab, online-video company YouTube Inc., could soon be snapped up by Google Inc.

Web-search giant Google is in talks to acquire YouTube for roughly $1.6 billion, a person familiar with the matter says. An acquisition of the closely held company would catapult Google to the lead spot in online video at a moment when consumers are rapidly increasing the amount of time they spend viewing video clips online, and Internet video advertising is booming.
ALL EYES ON YOUTUBE

The discussions between Google and YouTube are still at a sensitive stage and could break off, says the person familiar with the matter. Other technology, media and entertainment companies have expressed interest in taking stakes in YouTube this year, according to people familiar with the matter. Google rival Yahoo Inc. earlier this week expressed interest in holding acquisition talks with the video startup, these people say. YouTube also turned down a lower proposed value from Google earlier this week, before commencing discussions about the possible $1.6 billion deal.

A YouTube spokeswoman and a Google spokesman said they don't comment on "rumors and speculation." Rumors of their talks were reported on the TechCrunch blog.

The discussions come amid a flurry of acquisition talks initiated by media and technology companies looking to broaden their online presence. Yahoo and other companies have recently held discussions about buying social-networking site Facebook Inc. for around $1 billion or higher, say people familiar with the matter. The Yahoo talks with Facebook are continuing, says one of those people. Sony Corp.'s Sony Pictures Entertainment in August said it paid about $65 million to purchase closely held video-sharing site Grouper Networks Inc. Rupert Murdoch's News Corp. bought social-networking site MySpace last year for $650 million in a landmark transaction.


Like Web browsers and search engines before them, YouTube and social-networking sites are recognized as front doors to the Internet where companies can grab users' attention, and to try to link them to other services or hit them with marketing messages. News Corp. has already turned MySpace into a lucrative ad and promotional machine; in August, Google guaranteed MySpace and some other News Corp. sites a minimum of $900 million of ad revenue over the next three and a half years under an ad-brokering deal. Media companies have also been keeping a close eye on YouTube as a test case at a moment when consumers' online-viewing habits and corporate strategies are in flux.

A deal between YouTube and Google would combine Google's massive online ad system, which handles ads from hundreds of thousands of advertisers, with the top online-video site, according to several research firms. YouTube, San Mateo, Calif., says consumers view videos -- which range from short home videos of household pets to clips recorded from TV shows -- more than 100 million times daily through its service.

A purchase by Google, Mountain View, Calif., would also bring YouTube into a company that doesn't compete with other media concerns by producing or broadcasting its own video. That likely would make it easier for YouTube to continuing cutting deals with media and entertainment companies to carry their videos. General Electric Co.'s NBC Universal signed an advertising and content deal with YouTube in June, and Warner Music Group Corp. last month said it is working with YouTube to make its music videos and other content available through the site.

"Combining Google's huge advertiser base and proven key-word approach with YouTube's huge inventory of tagged content and their engaged audience could be a very lucrative combination if they can pull it off," says Mark Kingdon, chief executive of Organic Inc., a San Francisco online-ad agency owned by Omnicom Group Inc.

But any purchase by Google could further incite some content owners' who are already concerned that their copyrighted video and music is available without their permission through YouTube. That has concerned Yahoo amid its ongoing interest in acquiring YouTube, says a person familiar with the matter.

YouTube, which says it removes any infringing videos when notified, already faces one lawsuit related to this issue. Robert Tur, the owner of Los Angeles News Service, named YouTube in a complaint filed in July in U.S. District Court in Los Angeles. He alleged copyright infringement in connection with several videos available through YouTube. YouTube has said Mr. Tur's suit is "without merit."

Doug Morris, chief executive officer of Vivendi SA's Universal Music Group, last month told investors that YouTube violates copyright laws by allowing users to post music videos and other content. He said YouTube and MySpace "owe us tens of millions of dollars." People familiar with the matter say Universal, the world's largest recorded-music company, and YouTube have been in discussions about a possible agreement that would head off any Universal legal action against YouTube.

A connection with a deeper-pocketed Google could lead other content owners to take copyright action. The Internet-search company is no stranger to copyright disputes: It is currently facing off in court with book publishers, authors and a news agency over Google's use of their content.
[Chad Hurley]

Founded in February 2005, YouTube is the poster child for the boom under way in online video. YouTube's 29-year-old CEO, Chad Hurley, and its 28-year-old chief technology officer, Steve Chen, started the company in Mr. Hurley's Menlo Park, Calif., garage last year, along with another former colleague from eBay Inc.'s PayPal electronic-payment unit. Early videos on the site prominently featured the cat of Mr. Chen, who maxed out his credit card on business expenses before YouTube lined up venture funding a year ago.

By the Web site's official public release in December 2005, consumers were viewing YouTube videos more than three million times daily. That month, someone posted to YouTube a skit from NBC's "Saturday Night Live" dubbed "Lazy Sunday," featuring two grown men rapping about cupcakes, red licorice candy and the movie "The Chronicles of Narnia." Consumers viewed "Lazy Sunday" six million times before NBC on Feb. 3 contacted YouTube to request that it be removed, along with hundreds of other clips.

The startup, which has 67 employees and is located in an office above a pizza restaurant, has been racing to build new systems for generating ad revenue. At the same time, it is negotiating with media and entertainment companies about online use of their content, some of which is available without the video owners' permission on YouTube's site.

A purchase of YouTube would give a big boost to the online-video efforts of Google. YouTube commanded 46% of visits to U.S. online-video sites in September, according to market-research firm Hitwise. That compared with a 21% share for the video activities of News Corp.'s MySpace site and 11% for Google Video. Microsoft Corp., which recently launched a test version of its Soapbox service for users to submit and view videos, had a 7% share of such visits, according to Hitwise. News Corp. in the past expressed interest in discussing a possible acquisition with YouTube, say people familiar with the matter. News Corp. declined to comment.

Leading smaller online-video sites include Heavy.com, Break Media and Metacafe, which each had around three million U.S. visitors in August, according to research firm NetRatings Inc.

Google released its online-video service in January 2005. But its early efforts only included still images of TV shows, and it alienated some companies whose programming it had recorded without their permission. Despite expanding the service to include video provided by commercial producers and users, Google still lags in consumer usage.

"Google has tried extremely hard to make inroads in this space and has made some, but nothing compared to YouTube," says Dmitry Shapiro, founder and CEO of online video-sharing service Veoh Networks Inc.

Google co-founder Sergey Brin told reporters Thursday that the company plans to increase the prominence of videos on its site, by displaying any relevant clips alongside the results provided by its market-leading Web-search engine. Google is in discussions to license music videos and other content for its own video service with Universal Music, EMI Group PLC, Warner Music and Sony BMG, a joint venture of Sony and Bertelsmann AG, people familiar with the matter say.

Google and YouTube share a common backer in venture-capital firm Sequoia Capital, which helped finance Google during its early days and has provided funding to YouTube. While rumors circulated this year that some major media companies expressed interest in buying YouTube, YouTube's Mr. Hurley said in a June interview that the company wasn't for sale. He added that an initial public offering in the future was a possibility.

-Wall Street Journal

 

Thats crazy I would never imange that someone would put up that kind of money for youtube. Wasnt it a few weeks ago where 2B was the magic number he was looking for?

 

I wouldn't buy it, Google Video in itself will eventually be bigger than YouTube.

Remember when Yahoo.com was the 'only' search engine to use ?

 

1.6 billion dollars are you kidding me? I realize that the ad space etc. is worth a lot but since when did a website cost more than a billion dollars??????

 

Short Google?

 

Internet killed the video star

 

Maybe they know something we don't. Wouldn't you think they'd be a little paranoid that copyright infringment etc. could dampen things? Google/YouTube is another great tool for the Feds i.e. Big Bro, too

 

i'm invested in lvlt, level three technologies, who is the video source for youtube. i'm sitting here hoping and waiting...

 

they are buying community, ie brand. Utoob has
more eyeballs video eyeballs than all the other players combined.
And 1.6b in stock is peanuts to the big G, they keep more than that
in the candy jar in their lobby.

They are to big to to get into trouble for infringement, all that happens is that
they are asked to remove a certain vid and they promptly take them down.

 

Mark Cuban has blasted YouTube and if someone bought them, they are a "Moron".

 

A lot of the stuff on YouTube is infringement. Napster was "too hot", but they got beat up. $1.6 Billion is an insane price, but internet companies value things very differently than other companies.



All these insane deals make wonder how much FerrariChat is worth. IPO?

 

Looking at Media Metrix now... YouTube gets 19,909,000 million uniques per month and Ferrarichat isn't even listed. Then again, I'd assume Rob makes money off of advertising and memberships, making it more profitable than YouTube.

Hmmm.

 

it really seems as if no one learned anything from the last go-round of overinflated net companies...

IMHO we're going to see a re-enactment of some of the dot com silliness of 5+ years ago..though this time its going to happen in a much more accelerated time span..say 2 years..and then it will all come crumbling down upon them again.

It all goes hand in hand with the unjustified bull run we're seeing right now.

Buying branding and community is great...but youtube isnt worth $1.6 billion or anywhere close to that. It offers nothing Google isnt doing on its own. And just because $1.6 b isnt a huge amount to G doesnt mean its okay to frivilously (sp) spend it.

Im just glad Im comfortable shorting as well as going long

 

::sigh::

I've discussed this at length in the Business & Investments forum; subscribe to read my comments there.

In a nutshell, eyeballs now aren't what they were in 99 - there is actually an advertising revenue model behind them now. You actually CAN make money on traffic.

The deal makes sense for Google, who is at the cutting edge of contextual ads.

The online video ad market is largely untapped. Pre and post rolls are in their infancy, and instream ads aren't even really being touched yet. Once contextual video ads get there, Google will make a fortune.

YouTube will make money. Google has the infrastructure to support them without a $1m/mo burn rate.

Worth 1.6B? I don't know, but to me, that's not the interesting part of the story. The interesting part is that Google isn't buying the technology - they're buying the brand. That's something they traditionally don't do. Will they fold YouTube into Google Video? Vice Versa? Will they run separately?

FWIW, Google Video will never be YouTube for 2 reasons:
1. They pre-screen everything.
2. They're not, and will never be, "cool" like YouTube is.

 

there is the problem... Youtube will only be 'cool' for a short while.. the cycles get shorter and shorter as it gets easier and easier for people to develop these sites without large startup capitol.

Aol was once 'cool'.. yahoo was 'cool' .. Friendster was 'cool'.. myspace IS cool but wont be for very long..

It all will be replaced quickly by the next 'cool' site which some megacompany will then purchase and the cycle will continue. I understand this is nothing new..but the time frames in which these companies will rise and fall is.

Also, as someone who owns a company that pays for advertising in print and on the web, I find it interesting that people seem to think companies have infinite advertising dollars and that everytime something 'new' ( read myspace or youtube ) appears on which to advertise that theres billions to be made. Advertising dollars are finite and are already being spread too thin. Yes, companies will advertise through these new venues but the slices of the pie get smaller and smaller, which is what makes the sums being paid for these sites unpalatable.

There was actually an article I recently read about the demise of the long term mega corporations and how they are being replaced by startups that rise quickly and burn out just as quickly. I believe this is going to be, for the most part, true in the future, especially when it comes to web technology.

So yes..if Google can make a profit on buying youtube in the next two years then it was a good purchase..any longer than that and they're just sitting on yesterdays 'cool' site.

P.S. I'm subscribed and did read the thread in the biz section

 

Yea, I was reading on another site that as a controversial video's rankings climb all of a sudden it drops down. I'm sure that they'd remove anything that is a little too close to the truth too

 

I'm curious. How can YouTube be successful and make money, without having to face a real threat of legal problems? Why not stick to developing Google Video?

 

They've been actively working with copywrite holders to take down infringing materials. They've been actively working with all the studios - Sony/EMI/UMusic - and the studios are working out licensing. UMusic is being stupid, but in my experience dealing with them, they always are. Google and YouTube both have partnerships in place with some of the networks, and I'm sure other networks will follow suit. There are a LOT of eyeballs that can be reached in ways that were never possible before, and people are going to want to embrace that (eventually, when they realize that it does actually make sense).

Google Video isn't YouTube, and won't be YouTube. YouTube's reach is insane - Google Video's is no where near as large, and I don't feel that it ever will be because of the review process.

 

AOL was cool only because it was an easy way to get online. As people became more savvy, they didn't need their hand held.

Yahoo still is cool. It is THE #1 web property in terms of traffic per Media Metrix, with 131 mil uniques per month out of a total internet audience of 173 mil.

The Friendster/MySpace shift happened because Friendster became unusable. People stopped using Friendster because it became too slow. Infrastructure problems killed it from the inside out. MySpace started spamming people and got big. Then the so-called "network" effect happened - every body started using MySpace because that's where all their friends were at. No one wants to join anywhere else because no one's at the new site. MySpace will be around for a LONG time.

As a side note, when I first started working in the Internet world again about a year and a half ago, my buddy had a site called "MyVeo". The initial coders he used wrote the site horribly, and it ultimately "pulled a Friendster". Look at the Alexa on MyVeo vs YouTube, historically. We were first movers in the viral video space, and we were crushing YouTube, until we started slowing down to the point we were unusable. We reinvented it as Yashi - which I completely re-wrote the backend for, and we ultimately got gobbled up by a larger site, who has respectable numbers. Point is that sometimes it's not what's cool - users often move out of necessity because the site, in fact, sucks. Even with our slowdowns, when MyVeo barely worked at all, we still had people that loved our site and shot our site up to an Alexa 10,000 on the second day we relaunched it as Yashi.

eBay was cool too back in 99. It still is cool today for the same reason - everyone goes there because that's where everyone is. Better auctions have come and gone, but no one wants to jump ship.

YouTube's technology is solid. They have scaled extremely well, and they continue to. They have a network effect - everyone uploads their videos there because that's where they'll get the eyeballs. Everyone views the videos there because that's where they'll see the most videos. Think of YouTube more as the eBay of online videos.

 

Sure, the dollars aren't endless... thats something I agree that people still haven't learned from web "1.0".

When you look at how much advertising has actually moved from radio/tv/print to the web, it's still a very small slice of the whole advertising pie. That slice will get bigger and bigger.

I think Google's a good fit for YouTube because I utlimately think that an adwords/adsense type of contextual advertising will be developed for video. The serving costs will be significantly lower for Google, too, so they'll get more bang for their buck with the ads.

 

+1 on that
i'm looking at this potential sale on a stock basis. i'm just hoping that the one that i'm invested in, closely related to this sale, will go up because of it. i believe it will, but then again i'm no jim cramer or warren buffett. i do know that cramer sees nothing wrong with google, and that at the 420 it's trading at now, he says it's still a cheap stock, which doing the math it is. i personally only see good things coming from this.

 

It is worth more than $1.6 billion!

Can you put a value on a memory?

A 16 year olds birthday party video. A baby's first steps recorded on video. A limitless supply of memories from a limitless community! I think they are on to something!

 

lol, last week on snl dane cook made a good point about youtube: go to the search bar. just hit the keyboard, say you come up with: alksdfjalkh; there is probably a video of a kid somewhere with his shirt off with alksdfjalkh; painted to his chest dancing around to techno music. lol, but i love youtube, that's where i get most of my videos from

 

A few random thoughts:

There is technology to read the voice audio in a video and turn it into text.

There is technology being developed to recognize objects in a video.

In addition to the keywords entered by users in video descriptions and in searches, both of these technologies would create keywords for for Google to sell keywords ads or video ads against.

If Google can get advertisers to upload sponsored videos and buy keywords against them. The 100Million videos served daily by YouTube could make the 1.6B worthwhile.

Another random thought: if Google used just 1billion to pay users to post videos - would they turn the traffic tables in just a few short months?

 

I think these so-called "infringing uses" are a big part of its appeal. No one is going to care if all of the sudden people aren't allowed to post their homemade videos anymore. The bulk of these contain music which would be considered infringing. So then what?

RMX