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 Technology News | October 2006 
Google is Said to Set Sights on YouTube
 Andrew Ross Sorkin & Peter Edmonston - NYTimes
| | YouTube, the popular video-sharing Web site that has yet to celebrate its first anniversary or its first profit, is quickly becoming the must-have prize for media and technology giants. |
YouTube, the popular video-sharing Web site that has yet to celebrate its first anniversary or its first profit, is quickly becoming the must-have prize for media and technology giants.
Google is in discussions to acquire YouTube for $1.6 billion, people involved in the talks said yesterday. While the talks are in the early stages, and may fall apart, the size of Google’s offer may push YouTube closer to a deal. Other companies have also expressed interest and could swoop in with a higher offer.
Microsoft, Yahoo, Viacom and the News Corporation, among others, have all visited YouTube’s headquarters in San Mateo, Calif., in recent months to inquire about buying the company.
The frenzied hunt to acquire the next hot Internet property — MySpace last year and now YouTube — has become reminiscent of the first Internet boom, as companies bid up prices of sites whose ability to generate profits is the subject of much debate.
A deal for YouTube would be the crowning moment for a property that emerged as a cultural phenomenon almost immediately after it officially began last December. Its site, which delivers more than 100 million video clips a day, allows users to share a broad array of offerings from news clips to home movies to spoofs — sometimes funny but often simply crude — created by ordinary users.
Almost single-handedly, YouTube has both popularized the sharing of videos and empowered would-be movie makers around the world. The site is also facing possible legal challenges over the unauthorized posting and sharing of videos. Yet a number of media companies would prefer to embrace YouTube as a partner, rather than treat it as a pariah, as was the case with Napster.
If YouTube agrees to a deal, it would be a sudden change of heart. Chad Hurley, a founder of the company, has said that he prefers to stay independent. “We’re not even thinking about being acquired or going public,” he said in a meeting with New York Times editors and reporters last month.
A spokesman for Google declined to comment. A spokeswoman for YouTube did not return calls for comment.
YouTube’s meteoric rise has made it one of the most closely watched of the new generation of Internet companies created since the technology bust of 2000 and the fallow period that followed. The millions of people that visit YouTube each day make it a valuable property, though it has yet to turn a profit.
Rumors of YouTube’s talks with Google first appeared yesterday on TechCrunch, a Web site about Internet start-ups.
The $1.6 billion price tag, while seemingly rich for so young a company, makes sense, research analysts said.
“That’s expensive but not unreasonable,” said Charlene Li, an analyst with Forrester Research. Ms. Li estimated that the company has about 50 million users worldwide, which works out to a purchase price of about $32 a user.
The deal would make sense from the perspective of both companies, Ms. Li and others said.
“Google Video has not gotten any traction,” Ms. Li said.
Despite Google’s broad reach as an Internet search service and its well-known brand name, Google Video has only a 10 percent market share, according to Hitwise, which monitors Web traffic. YouTube has a 46 percent share, and MySpace has 23 percent.
“YouTube figured out what Google and Yahoo and Microsoft and all the others in the marketplace didn’t,” she said. “It’s not about the video. It’s about creating a community around the video.”
A link-up with Google might also carry benefits for YouTube as it tries to clear up its legal picture. Google and its lawyers are already addressing similar questions involving copyrighted works on the Internet and working on technology to deal with them.
“Who is in a better position to develop that technology,” Ms. Li wrote in a blog entry posted yesterday. “Sixty burnt-out people at YouTube or the legendary technical minds at Google?”
Mr. Hurley and Steve Chen started YouTube after the two struggled to share videos of a dinner party in January 2005. In a sense, YouTube is the classic Silicon Valley start-up. The pair, working out of a garage and still in their 20’s, went on to secure $3.5 million in venture capital from Sequoia Capital, one of the two venture firms that invested in Google when it was a small, relatively anonymous company.
The recent takeover frenzy is being fueled in part by the News Corporation’s acquisition of MySpace, a social networking site immensely popular among teenagers. The company, controlled by Rupert Murdoch, bought MySpace last year for $580 million in cash, and it is now worth as much as $2 billion by some analysts’ estimates.
Sumner M. Redstone, the chairman of Viacom, recently called losing MySpace to Mr. Murdoch “humiliating.” He also said that one reason he fired Tom Freston as Viacom’s chief executive last month was because he failed to secure that deal and did not move fast enough to push Viacom’s Internet activities.
Yahoo, meanwhile, is in negotiations to buy Facebook, a social networking site originally aimed at college students, for more than $1 billion, according to people involved in those talks.
But while media moguls are fascinated by YouTube, they also harbor deep concerns.
The site’s mix of videos includes many clips from television shows and movies, often posted without a thought to who might own the copyright. As a result, there are widespread concerns that YouTube may eventually draw a hailstorm of lawsuits — especially if the company becomes part of a deep-pocketed acquirer.
Doug Morris, the chief executive of the Universal Music Group, recently called YouTube and MySpace “copyright infringers” and said that the sites “owe us tens of millions of dollars.”
Mark Cuban, who founded Broadcast.com, an early Internet video site that was bought by Yahoo, has suggested that YouTube is essentially a business based on piracy.
Some in the industry have even compared YouTube to Napster, which, before it adopted its current subscription-based model, was a hugely popular free music-swapping service. Lawsuits from the recording industry forced the original Napster to shut down, and it eventually filed for bankruptcy protection.
YouTube says it is different from Napster because it removes content when a copyright holder informs the company of a violation. It points to the Digital Millennium Copyright Act, which in general does not require Internet companies to screen material in advance.
Despite these legal uncertainties, YouTube holds obvious appeal for any potential acquirer. Buying YouTube would instantly vault Google to the lead in the business of online video, which is drawing increased interest from advertisers. Its own fledgling offering, Google Video, remains a relatively small player.
At $1.6 billion, YouTube would be Google’s most expensive acquisition. In fact, it would cost nearly as much as Google’s total acquisitions budget since 2001, according to a recent estimate from Citigroup. Google’s largest investment to date was its $1 billion equity investment in Time Warner’s AOL subsidiary, which was part of a multiyear advertising deal.
Google had cash and marketable securities of about $9.8 billion as of June 30, and its market capitalization stands at about $129 billion.
Gary Rivlin and Saul Hansell contributed reporting. |
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