October 10, 2006

"The Google-YouTube deal has to feel a little like the 1990’s, but it isn’t."

“If you knew then what you know now and you had the chance to acquire Amazon or eBay — which weren’t making any money either — you would have bought them.”

Is YouTube worth $1.65 billion? How do you make money with it? Embed ads in the videos? (That's one idea. Would you still watch?) And how do you avoid all the lawsuits waiting to happen? (Deals with the entertainment industry? But you can't reach all the copyright holders, can you? And where does the money come from?)
Phil Leigh, the president of Inside Digital Media, said the new arrangements represented “a strong endorsement that the major media companies are going to see YouTube as a legitimate business partner.”

Mr. Leigh said that also suggested a rethinking of the approach the companies took to Napster. “It shows that very important, erstwhile reluctant media companies have got religion,” he said.

16 comments:

Brad said...

I'm not quite sure how Google intends to make back their money with a service that seems to be 80% copyrighted material and 20% teenage girls dancing around and showing off their bras. I suppose there's a market for everything.

Dave said...

I don't pretend to understand either the appeal of YouTube or how it (or, more appropriately, Google) plans to make money with the service. But a lot of smart venture capitalists seem to have bought into the social networking thing. Either this becomes a viable business or not, but then that is what we can say of all nascent industries.

Bruce Hayden said...

Hey,the 20% teenaged girls dancing around showing off their bras is also protected by copyright. I would put the amount of material protected by copyright up to 98%. After all, about the only stuff that isn't any more is material that is created by the federal government or where the copyright expired. But thanks to the Mickey Mouse (aka Sonny Bono) Copyright Extension Act extended term to life+70 for individuals, and 95 years for works made for hire, etc.

I was talking the other day to a friend/client, and when she was worrying about the copyright on her works, I pointed out that they would probably last through the life of her yet unborn grandchildren, and maybe even great grandchidren. Not something to stay up at night worrying about.

I really am surprised at Google in this, because they are already starting to face a lot of copyright issues themselves, and in most cases, they have a Fair Use exception that will be significantly less available at YouTube.

Michiel said...

A lot of people prefer to watch short television shows on the internet. If YouTube adds ads and offers a share to the copyright-holders, why wouldn't they be interested.

Also, youTube/google can target ads to their audience, since they know who you are, which makes advertisers willing to pay much more (and it makes the audience more willing to watch the ads).

Michiel said...
This comment has been removed by a blog administrator.
Bruce Hayden said...

The problem is in identifying the copyright holders. If Google/YouTube sticks to deep pocketed content providers, they should be ok.

The problem though is that most of the content, at least today, on YouTube is not from deep pocketed content providers. So, if it infringes, the natural party to bring in is, guess who? Google, of course.

What has to be remembered is that lack of intent is not an element in determining civil liability in a copyright case, but rather, only is applicable as to damages (but is relevant in the rare criminal cases). Damages may be increased if intentional, and reduced if not, and presumably, they will have an agreement with the posters that the material is copyright safe. But that won't negate infringement, just reduce damages.

Add to this that if you register a copyright early enough, if you win, you almost always get your attorneys' fees. Thus, even if an innocent infringer, Google may end up paying a lot of such.

Oh, and this only applies to U.S. works. Which means that owners of foreign copyrights typically don't have to even do that (register) to get attorneys' fees.

So, I would not be surprised to see a lot of $10,000 statutory damage awards against them, with another $100k-$200k or so of attorneys' fees added on top.

Let me also point out that the great thing about statutory damages is that you don't have to prove actual damages. And they too are only available if you register early enough - or hold a foreign copyright. But if they are available, they are at the option of the plaintiff.

Bruce Hayden said...

Apparently, Youtube had just signed an agreement with several major content providers for essentially trading content for advertising.

Dave said...

Bruce--I'm not a lawyer, but you bring up a number of interesting points, all of which I have used to challenge various venture capitalists who claim that the future of the internet is in "content" by which they mean: a kid goes out, shoots a grainy video of him and his friends playing soccer, and then, using iMovie or something similar, sets it to music, say, Stairway to Heaven, to use a cliche.

Therein lies "innovation" in the minds of these VCs. Now, one may reasonably argue that intellectual property laws are outdated (I would argue such). But it seems rather counterproductive to make that argument by appealing to utopian visions of "content" creators freed from the rights of copyright holders. Else, what is the incentive to create? As I recall, Thomas Jefferson made much the same argument in favor of patents. I would bet on the sagacity of Jefferson over VCs.

Dave said...

Incidentally, the Economist has a free link to an article arguing that the purchase makes sense, here.

I tend to give their reporting more credence than most mainstream news sources, especially when it comes to issues of either economics, finance, or business.

Freeman Hunt said...

Though the purchase price seems a bit steep, I think they'll make money. They'll do it in part the same way they do it in search and in blogs: allow users to place ads or PPC ads in their videos for a piece of the revenue. Google's entire business model is based on content distribution--YouTube is just more content to distribute.

SteveR said...

keep it easy and free and I'll gladly ignore, I mean watch the ads.

BJK said...

SteveR touches on the problem faced by all the Web 2.0 / social networking sights....as soon as you try to build ads around the site and its services, you redirect much of the user base to less-commercial (ie., less hassle) sites.

The genius of YouTube - allowing for imbedded video with the site's branding on other people's websites - is also why it is so difficult to monetize the product. You can't make money off banner ads when people aren't going directly to your site. Likewise, if you try to tack on commercials to existing content....it's going to turn off the user base.


Now that YouTube has been bought by big pockets....just wait for all the copyright infringement lawsuits to start.

I have to agree with Mark Cuban on this subject (and he should know, since he got Yahoo! to buy the web 1.0 equivalent to YouTube: broadcast.com).

johnstodderinexile said...

If you're a baseball fan who looks at clips on MLB.com, you're used to seeing brief ads before the content.

I don't see why a must-see, buzz-certified, user-created video -- a Mentos/Diet Coke type of phenomenon -- wouldn't still get 80-90 percent of the number of hits it gets now if a 10-second ad preceded it. Such content would first appear for free, but once the folks at YouTube determine they've got a hit on their hands, an ad could be added.

It's sort of a long-tail story in reverse. I'll bet most of the eyeballs going to YouTube are there to check out something that's already gotten lots of hits. They can pay the piper. The experience of those who go onto YouTube to see their friends dancing around in their bras, or who want something esoteric like a 40-year-old Swedish TV clip of Yehudi Menhuin, wouldn't have to change.

Revenant said...

Bear in mind that the company was bought with Google stock, not actual cash. So really it didn't cost Google anywhere near $1.65 billion, unless you think they could have actually sold that much stock for that amount of money.

Tibore said...

"If you knew then what you know now and you had the chance to acquire Amazon or eBay - which weren’t making any money either — you would have bought them.”

Yes, of course, but that's a dumb what-if scenario. Who can predict the future? Back then, there was no reason to assume Amazon or eBay would emerge as the successes they eventually became. Pets.com anyone? They had just as big a chance. I mean, be real: Before those companies, who'd invest in any business model that had no profits and would depend on not just growth but market domination to become profitable?

"Is YouTube worth $1.65 billion?"

I don't know... personally, I don't see how it could be. Remember how much Mark Cuban was paid for Broadcast.com? What exactly did that net for Yahoo, profits-wise?

And speaking of Cuban, he's got some thoughts about the YouTube-Google story:

Some thoughts on Youtube and Google

"I still think Google is crazy :)"

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Changing topics - Word verification: pxxsy. How risqué this Word Verifier is choosing to be today ;)

jamescbennett said...

I would imagine that google's acquisition of YouTube has little to do with wanting a way of making money off of teenage girs in bras, and a lot to do with wanting people who know how to serve video content on the web so well that they can turn their system over to millions of anonymous users without having it fall apart. Running server farms is what Google does better than anyone else; now they have improved on their core competency and/or eleminated potential competition.