YoooooouTube?

profwhat.

Posted to Business on Fri Oct 13, 2006 at 02:36:52 AM EST. RSS.

For most of us, the words "YouTube" and "$1.65 billion" do not go naturally into the same sentence. The phrases "pet videos," "small-time copyright infringement," and "low-grade amateur porn" seem to fit better. But now the Valley is swinging like it's 1999 again: Google bought YouTube for $1.65 billion in stock.

Dust off your Motorola StarTACs, charge your Palm Vs, and use Netscape 4.06 to log in to your E*TRADE accounts, because it's a return to the old days. That's right, folks: a company with no revenue stream, an eyeball-based business plan, an estimated $900,000 to $1.5 million per month in bandwidth costs, and content that is obtained mostly through copyright infringement now makes its founders filthy rich. And just like the inflated bubble mergers of old, it's being done with stock, not cash.

Meanwhile, while you were busy buying bond index funds and taking shelter in gold, the rest of the market is doing pretty well. The Dow is at an all-time high, the S&P 500 ain't too shabby, and the tech-heavy NASDAQ is... well, almost up to 50% of where it was before the crash.

edited by kiwiana

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Are you carryin' a weapon on you I know a lot of you [Wisconsin Public School Teachers] are? >

Tags: edited by kiwiana, YouTube, google, low-grade amateur porn (all tags)

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18	Re: YoooooouTube? eduardo. Sun Oct 15, 2006 at 09:45:45 AM EST 4.50 (interesting, interesting)

This makes so much sense that you can't even imagine how much damn sense it makes.

The price : yes the price is amazingly high, but keep in mind that the transaction is all-stock. If google people recognize that their stock is a bit overpriced at the moment, they may not mind paying an inflated price using inflated stock.
Who pays? We don't know the details yet but the transaction is reported to be "dilutive" - meaning that it's not like Google is going to buy back stock in order to give it to YouTube - they will simply print more stock and give it out. Theoretically this screws existing shareholders by diluting their equity but since everyone's so excited about this, the shareholders aren't about to complain.
Who gets hurt? Theoretically, Google shareholders, for the reason mentioned above. But they may not care. Does the company itself face any additional risk? Not at all. They didn't spend any cash! There's almost no opportunity cost, no financing expense, nothing. In terms of risk, YouTube came pretty much free. Obviously thr owners of YouTube are happy. The only bad immediate outcome would be if, as soon as YouTube people got their Google stock, they sold it. That would drive down the stock price and hurt, the already diluted, worth of the present holders. But then again we don't know enough about the transaction to know what kind of limits the YouTube guys will have on selling Google stock.
Who needs it? When I had interviewed at Google a long time ago, I asked how product development in managed, and someone replied: the engineers come up with an idea, and then business decides how to monetize it. Now let's think about this - Google already has developed GoogleVideo which is pretty much the same exact thing as YouTube. They've clearly already ran the numbers of what this could mean for their business and commited to pursuing that area. But for whatever reason, GoogleVideo is only a fraction as popular as YouTube. So to pursue whatever vision it is that they have, they are buying YouTube. We may not know what that vision is but it's clear from Google's past actions that they definately have a strategy in this space.
What could that be? A Time Warner exec recently commented that YouTube is not "the next television" but who knows? Could it be that in some point in the future we will tune in to YouTube to watch Gray's Anatomy and Desperate Housewives? We're talking about a different advertising ballgame there, with the level of money which we see in TV ad space. That's just one guess, but like I said in the previous 4 points, this didn't 'cost' Google all that much so I am not sure it has to be all that revolutionary to increase cashflow.

10	low-grade amateur porn dirigibleman. Sat Oct 14, 2006 at 11:42:13 AM EST 4.00 (funny)

Oh, that's why they call it YouTube.

10

Re: low-grade amateur porn

ckm.

Sat Oct 14, 2006 at 02:44:30 PM EST

4.00 (informative)

Nope, that's PornoTube (NSFW). Yup, someone was bound to come up with that after YouTube's popularity....

1	Revenues? T Slothrop. Fri Oct 13, 2006 at 02:33:25 PM EST none

Picking up on the 'q discussion, I think the whole copyright infringement issue is kind of beside the point. The point, imo, is:

How is anyone going to make money off this?

Banner ads? Please.

And while Dvandom may be on to something, 1.65 billion-with-a-'B' seems like an awful lot just to play corporate one-upmanship with Yahoo.

So what is really going on here? I suspect no one except the inside players have a clue - and I'm not sure if they know, either.

{Insert amusing quotation here}

3 1	Controlling the Medium pattonbt. Fri Oct 13, 2006 at 04:13:48 PM EST 5.00 (astute)

I think this is more about getting the big name in amateur streaming entertainment first, worry about the money later. YouTube right now, is the biggest name in mainstream online video entertainment. I mean if even I have heard of it and visited it, then you now its reached pretty far. So Google is taking a punt (I must admit a hell of lot more expensive a punt than I would have expected) on buying up the brand that YouTube has created.

This is no different than Murdoch buying Myspace. The big boys let the little boys build up the brand and when the brand begins to become the field, they swoop in and buy it up at a price the original owners cant refuse. The big boys will then have cornered the name plates and when someone figures out how to make money, they will be primed to reap the rewards. So Google will figure out what to do with it later and how to make money of it then. I am sure they can work in Google video and pay content as well as banner ads.

2 1	Re: Revenues? Thalia. Fri Oct 13, 2006 at 03:50:19 PM EST none

How much money do you think Google makes off of advertising? Google reported revenues of $2.46 billion for the quarter ended June 30, 2006. Of that, AdSense programs generated $997 million. If you think banner ads can't be profitable, you haven't been looking.

Thalia

7 2	Re: Revenues? T Slothrop. Fri Oct 13, 2006 at 11:57:59 PM EST none

I thought all day I was just going to let this go - that I really had been as stupid as you imply. But this evening when I had a moment to think not intruded upon by work issues, it dawned on me.

Google's revenue comes from targeted ads based upon the search terms a user enters - The "sponsored links" seen at the top and right sidebar of search results. They don't run "banner ads" in they way I meant the term at all.

So how is that model going to translate to YouTube? Ads from movie studios and TV networks based on the search terms entered? I can't really see that, but even if you can, that isn't even the way a lot of people use YT. In fact, many users barely use the search function at all. Instead, they use it as more of a video-enabled social networking site.

So I ask again, how the hell is anyone planning to make money off this site?

{Insert amusing quotation here}

8 7	Re: Revenues? humorlesscretin. Sat Oct 14, 2006 at 04:26:00 AM EST none

At a guess, substitute tags for search terms. How well that would work out, i have no idea.

Humorless. Cretinous. What'd you expect?

14 7	Re: Revenues? Thalia. Sat Oct 14, 2006 at 02:48:36 PM EST none

Actually, most of the shows on YouTube are tagged (i.e. identified with keywords), which can handily be used by AdWords to target advertising. Watching that really cool Honda ad? Place an advert for Honda, and maybe one for The Incredible Machine next to it. Watching a clip of a politician being stupid? I'm sure their opponent would love to put up an ad next to it.

Google has never sold banner ads, in the traditional sense. But their ads work just fine, and I don't see any reason why they wouldn't gracefully integrate into YouTube's format.

Thalia

19 7	exposure... 1fastdog. Sun Oct 15, 2006 at 10:20:07 AM EST none

So I ask again, how the hell is anyone planning to make money off this site?

I think it's less about making the quick buck and more about establishing the dominant online viewing medium. Sure, Google's partners will share in whatever ad revenue is aquired, but I'll posit that the labels and studios that've signed on are looking at the benefits of exposure - 30 million monthly visitors is nothing to sneeze at. If there was anything that record labels learned (begrudgingly for sure) after the Napster fiasco, is the fact that it's better to work with technology and use it to their own advantage, then to rest on past methodologies and rail at the unfairness of it all while sending the legal shock troops after any and all ( not that this still doesn't happen, but I think it's on the wane). Google wins by controlling the best video sharing site on the web, and whatever revenue it brings in is icing on the cake.

Legal concerns were a likely reason that, before Google announced the acquisition Monday, YouTube unveiled licensing deals with the world's two largest music labels, Universal Music Group and Sony BMG Music Entertainment, as well as with CBS Corp. The deals clear the way for music videos, television news, sports clips and entertainment programs to be distributed free on YouTube in exchange for a share of whatever advertising revenue may follow.

As for the the whole copyright infringement crapola, well, I don't think that particular dog will hunt for very long. For the same reasons stated above, the potential exposure for labels and studios trumps any copyright issues. Some may bitch and moan publicly about copyright, but are probably salivating in private about the potential exposure.

Dennis Miller, a general partner at Spark Capital in Boston, said he thought the copyright concerns were overblown. Even as corporate lawyers wring their hands about the infringement, he said, "the most clever players in Hollywood" are seeding YouTube with promotional video because there's no other place on the Internet that serves 100 million video streams a day.

All in all, I think it's a good aquisition for Google.

Somewhere in my soul, there's always Rock -n- Roll... Joe Strummer

4	Re: YoooooouTube? Thalia. Fri Oct 13, 2006 at 07:15:56 PM EST none

I was promised an argument about YouTube and litigation, and I'm still awaiting it. Here is my view, the short form. YouTube's member agreement says "you know you have to observe copyright rules." The DMCA is designed to provide a safeharbor against copyright infringement to Internet service providers, of which YouTube is clearly one. YouTube scrupulously (or overzealously depending on your point of view) removes anything that gets a DMCA complaint immediately. Therefore, they're clearly within the intended bounds of the DMCA.

YouTube itself posts no content, and according to folks I know there, something like 20% of their content is posted by marketing folks/copyright owner empowered folks. Another noticeable percentage is people posting images of themselves or their friends being idiotic. Clearly safe. There is quite a bit of copyrighted material on YouTube, but in order to end up liable with the DMCA, they'd have to refuse to remove materials, or post materials themselves.

Thalia

5 4	Re: YoooooouTube? profwhat. Fri Oct 13, 2006 at 10:45:48 PM EST none

But that doesn't mean YouTube isn't infringing copyrights -- it just means they aren't liable. That's more than a lawyerly quibble, too, because as a business, YouTube is just as empty as Napster. I'll wager the majority of its users are there to download content that infringes copyright.

Speaking of Napster, if copyright holders ever decide to really get tough on YouTube, they're in for trouble. Napster got screwed because it found it was technologically impossible to truly take down a work when an army of users is empowered to share a work (or, in YouTube's case, to upload it). If a song named "A Train" gets taken down and they block that file name only, then "A-Train" or "A Trane" gets through. YouTube says it has more advanced filtering that actually looks at the content. We'll see.

6 5	Re: YoooooouTube? Thalia. Fri Oct 13, 2006 at 11:06:16 PM EST none

Actually, YouTube doesn't say that. It says "identify it for us, and since it's on our servers in a known location (which you told us) we'll remove it." This is different from the distributed system of Napster where randoms hosted content that was not controllable from the central servers, and had no defined location.

I was talking about YouTube's liability under copyright law. There is a "copyright safe harbor exception" for people just like YouTube. Therefore, definitionally, they are not liable for copyright infringement, as long as they remain within the harbor.

And finally, as I pointed out, a significant percentage of their content is non-infringing.

Thalia

9 6	Re: YoooooouTube? profwhat. Sat Oct 14, 2006 at 08:17:13 AM EST none

I was talking about YouTube's liability under copyright law.

Then you ably shot down an argument that no one made.

This is different from the distributed system of Napster where randoms hosted content that was not controllable from the central servers, and had no defined location.

But Napster could control everything from its central directory servers--cut a user off the directory, and you stop them from sharing via Napster. Didn't work out for them. The only advantage YouTube has is that it can run nifty hash/image/content/whatever filters on the works themselves -- it has more data than filenames. We'll see if that's enough.

15 9	Re: YoooooouTube? Thalia. Sat Oct 14, 2006 at 02:57:24 PM EST 4.00 (informative)

You still don't get it. There is no such thing as "copyright infringing company" that is "not liable for copyright infringement." It's like saying someone who kills another in war, or self-defense, is a "murderer who is not liable for murder." Nope, not a murderer, if the law says what they did was not murder. May be a killer, but not a murderer. YouTube is not a copyright infringer, because the law says that what they're doing is not copyright infringement.

As to the difference between Napster and YouTube, it's quite a big one. First, Napster internally and externally advertised itself as a way to get illegal downloads. Second, YouTube can shut down a particular link, without shutting down an entire user. In other words, if I upload 100 perfectly amusing tidbits, and one of them has a problem, they don't have to remove all 100 of my posts, in order to get rid of the one. Napster couldn't do that. They couldn't scan all 100 bits that I was hosting, and remove the one that was a problem. They could either cut me off or not. Furthermore, just because I named it "Madonna's Big Hit" didn't mean it was a copyright infringing video of Madonna's current hit. It could've been some goofy people dressed up like Madonna and doing something lame. On YouTube, you can identify the specific location (they're unique URLs) of the infringing material, at which point it is trivial to remove. On Napster, you can only identify the name of the infringing bit, and as you know, name space clashes are quite common, especially for self-titled things. For some reason tons of people title their oeuvre "Watch This."

Thalia

15

Re: YoooooouTube?

profwhat.

Sat Oct 14, 2006 at 03:31:07 PM EST

none

There is no such thing as "copyright infringing company" that is "not liable for copyright infringement." ... YouTube is not a copyright infringer, because the law says that what they're doing is not copyright infringement.

As I explained in my post to koos, the law does say that what they are doing is copyright infringement. It also says that they are not liable for that infringement:

1) In general. - A service provider shall not be liable ... for infringement of copyright by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider, if the service provider -

In other words, an infringement occurs, and it occurs because of the service provider's conduct, but the service provider is not liable so long as it obeys a takedown notice. If it doesn't, it is liable. But obeying the takedown notice doesn't retroactively make you not an infringer.

Remember also that this exemption from liability only applies when YouTube "does not have actual knowledge that the material or an activity using the material on the system or network is infringing," and also "does not receive a financial benefit directly attributable to the infringing activity." Are you telling me that Google is not going to do targeted ads to people who download copyrighted clips? If they do, then there's a serious argument that they flunk both these requirements.

11 5	Re: YoooooouTube? koos. Sat Oct 14, 2006 at 02:07:33 PM EST none

But that doesn't mean YouTube isn't infringing copyrights -- it just means they aren't liable.

Dear profwhat,

Please explain this to me a bit more clearly. My law degree and I have conferred for a few minutes, and we still can not make heads nor tails of this comment. One is only liable for copyright infringement. No other acts regarding copyrights would cause one to be "liable". And if they aren't liable, then BY DEFINITION, they aren't infringing. And even if there were such a thing as "infringing but without any liability" exactly what would the legal downside of that be? It really sounds like a distinction without a difference, to me.

I mean, sure, posting someone's TV show on the interwebs is infringement... for the person who posted it. But, as Thalia pointed out, there's a safeharbor for folks like Googtube. If they promoted themselves and attarcted eyes exclusively through copyrighted material (like Napster did), I'd see this as a problem. But, I've never seen copyright-infringing material on there. Just dudes with Altoids/Diet Cokes, stupid little girls, and crazy christmas lights.

I'm not saying there aren't copyright violations there. Just that it doesn't appear to be the most likely place for someone who wants illegal copies of... whatever... to go.

{ k }

11

Re: YoooooouTube?

profwhat.

Sat Oct 14, 2006 at 03:05:47 PM EST

none

And if they aren't liable, then BY DEFINITION, they aren't infringing.

That is not the definition of infringement. The definition is: "Anyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 122... is an infringer of the copyright or right of the author, as the case may be." For our purposes, those exclusive rights are defined in section 106 and include the exclusive right to make copies. When you transmit copies electronically, you're an infringer.

Thalia is going on about the DMCA. But the DMCA does not say that you aren't an infringer if you comply; it merely says that "a service provider shall not be liable ... for infringement of copyright." In other words, there is an infringement, it's just that the provider is not liable for it.

In other words, I am perfectly correct in saying that YouTube's success is founded on copyright infringement, and Thalia is perfectly correct in saying there is no serious liability risk so long as they continue to obey takedown notices.

Reading this post entitles you to 0.25 hours of CLE credit.

16

Re: YoooooouTube?

coquito.

Mon Oct 16, 2006 at 12:02:21 PM EST

none

In other words, there is an infringement, it's just that the provider is not liable for it.

I think I see what you're saying. The confusion, it seems to me, comes in when you then ask who is doing the infringing? (i.e. who is the infringer? I wouldn't know, I'm not the decider of these things)

Anyway... let's assume that yes, an infringment has occurred. If so, then it seems correct, as Thalia and koos point out, that it is not YouTube, as a company, doing the infringing. If they were, they would be liable, but they are not, therefore, they are not considered to be infringing.
So yeah, on the one hand, you could argue that "YouTube's success is founded on copyright infringement," but it's someone else doing the infringing.
Going back to Thalia's example, let's say that YouTube runs a very popular and, somehow, lucrative video of someone murdering someone. You could argue they are making money on murder, but they are not (legally, or, in fact) the murderers. Similar distinction - YouTube may be making gains from copyright infringement, but they are not, themselves, infringing.

Cripes. I think I just infringed my brain...

Now with caps!

12	It's not that much money... ckm. Sat Oct 14, 2006 at 02:41:35 PM EST none

Keep in mind that the transaction was almost all stock and that Google is currently valued at 100 billion dollars. So purchasing YouTube cost them 1% of their value. Big deal.

What did they get for that 1%? They bought 100 million ad-spaces per day. Right now YouTube has very little advertising. I'll bet they could generate a lot of cash with AsSense alone.

Seems like a pretty good deal since MySpace just signed a deal for $900 million in ad-sharing (and Google could have bought MySpace for $250 million, d'oh).

I think this was a very, very good buy. It's not .com irrational, they bought the eyeballs. Skype was .com irrational.

Yes, they have copyright issues, but Google has a lot of leverage vs content providers, unlike YouTube. Imaging what delisting a movie studio's websites might do to their efforts to promote their $200 million movie....

Chris.

21	Low- grade amateur porn T Slothrop. Mon Oct 16, 2006 at 03:53:58 PM EST none

Ahem.

Before this story slips off the front page and into TnT oblivion, I feel duty-bound to point out that coquito's quite reasonable request in the 'q was ignored.

I'm looking at you profwhat (and Editor kiwiana).

And where is Ace's "blue" section, anyway?

{Insert amusing quotation here}

21

Re: Low- grade amateur porn

profwhat.

Mon Oct 16, 2006 at 08:17:27 PM EST

4.00 (funny)

I left it blank, hoping that there would be helpful suggestions from the subqueue. You guys suck.

21

Re: Low- grade amateur porn

ckm.

Tue Oct 17, 2006 at 12:50:50 AM EST

none

And why did my comment about PronoTube get voted down to zero? It's not like I was asking anyone to go look at it, just that there are plenty of YouTube porn clones....

Chris.

This story: 26 comments (10 from subqueue)

Post a Comment

profwhat.

Posted to Business on Fri Oct 13, 2006 at 02:36:52 AM EST. RSS.

Re: YoooooouTube?

eduardo.

Sun Oct 15, 2006 at 09:45:45 AM EST

4.50 (interesting, interesting)

low-grade amateur porn

dirigibleman.

Sat Oct 14, 2006 at 11:42:13 AM EST

4.00 (funny)

10

Re: low-grade amateur porn

ckm.

Sat Oct 14, 2006 at 02:44:30 PM EST

4.00 (informative)

Revenues?

T Slothrop.

Fri Oct 13, 2006 at 02:33:25 PM EST

1

Controlling the Medium

pattonbt.

Fri Oct 13, 2006 at 04:13:48 PM EST

5.00 (astute)

1

Re: Revenues?

Thalia.

Fri Oct 13, 2006 at 03:50:19 PM EST

2

Re: Revenues?

T Slothrop.

Fri Oct 13, 2006 at 11:57:59 PM EST

7

Re: Revenues?

humorlesscretin.

Sat Oct 14, 2006 at 04:26:00 AM EST

7

Re: Revenues?

Thalia.

Sat Oct 14, 2006 at 02:48:36 PM EST

7

exposure...

1fastdog.

Sun Oct 15, 2006 at 10:20:07 AM EST

Re: YoooooouTube?

Thalia.

Fri Oct 13, 2006 at 07:15:56 PM EST

4

Re: YoooooouTube?

profwhat.

Fri Oct 13, 2006 at 10:45:48 PM EST

5

Re: YoooooouTube?

Thalia.

Fri Oct 13, 2006 at 11:06:16 PM EST

6

Re: YoooooouTube?

profwhat.

Sat Oct 14, 2006 at 08:17:13 AM EST

9

Re: YoooooouTube?

Thalia.

Sat Oct 14, 2006 at 02:57:24 PM EST

4.00 (informative)

15

Re: YoooooouTube?

profwhat.

Sat Oct 14, 2006 at 03:31:07 PM EST

5

Re: YoooooouTube?

koos.

Sat Oct 14, 2006 at 02:07:33 PM EST

11

Re: YoooooouTube?

profwhat.

Sat Oct 14, 2006 at 03:05:47 PM EST

16

Re: YoooooouTube?

coquito.

Mon Oct 16, 2006 at 12:02:21 PM EST

It's not that much money...