Google sets sights on $1.6bn bid for YouTube

 

Andrew Clark in New York

Saturday October 7, 2006

The Guardian

 

A graphic designer and a technology geek who together created the video website YouTube could soon join the ranks of the world's super-rich by selling their venture to the search company Google. Reports in America yesterday suggested that Google is in talks to buy YouTube for as much as $1.6bn (£855m) in an effort to capture its huge following of users who view video clips more than 70m times a day.

 

The deal would cement YouTube's reputation as one of the internet's fastest success stories. The site was established 18 months ago in a Californian garage by Chad Hurley, 29, and Steve Chen, 27. They came up with easy video sharing technology which has become one of the world's most popular websites, with 29,000 new clips downloaded every day.

Neither Google nor YouTube would comment on the reports which surfaced on an industry blog, TechCrunch. The Wall Street Journal said a "person familiar with the matter" had confirmed talks were under way but at a sensitive stage. Google's shares jumped by more than 2%.

 

Google, which is cash-rich from a recent stockmarket flotation, could easily afford to swallow the fledgling business - the rumoured price tag amounts to 15% of its cash balance. But it may face competition - Yahoo, Microsoft, AOL Time Warner, Disney and News Corporation have all been mooted as potential buyers.

 

Media companies are anxious to find a way to share in the ballooning popularity of online video clips as a potential way to show advertisements and to sell content.

 

Mark May, analyst at the US broker Needham & Co, said: "The companies on the acquisition side realise this is a space they need to be in and they realise it's going to be hard for them to build sites now. It's probably better to buy than to build."

 

But the mooted valuation will remind some of the heady prices overpaid for online start-ups with sketchy business models at the height of the dotcom boom. Any potential YouTube owner will also face a headache in overcoming copyright issues from media rivals unhappy with the number of unauthorised television, music and film clips which crop up on the site. There is also the question of how to make money - YouTube is pursuing an advertising-based model but is yet to prove that it can turn its popularity into profits.

 

If the YouTube price tag is raising eyebrows, so is the price paid for MySpace. One of the men behind the social networking site is calling for a federal investigation into its purchase for $580m (£310m) by Rupert Murdoch, claiming that senior executives conspired to dispose of the brand for a criminally low price.

 

The site, sold to Mr Murdoch's News Corporation in July last year, has more than 100m registered users, and one analyst has said the company could be worth $15bn within three years

I heard about this earlier. ^_^ What will happen to Google Videos then? :unsure:

Big shark to gobble up smaller fish.

 

.....Now there is something new :rolleyes:

No article but just heard the news.

 

It is a good move for consumers, or just a video monopoly now?

If anyone but Google bought them I'd be worried... but they seem to have a pretty infallible record as far as I'm concerned. They'll keep it free and hopefully improve interface and function.

 

As for its two founders... wow. You establish a small-scale web site for people to share video clips and less than a year later someone pays you $1,860,000,000 for it. Not to bad a deal!!

tbh it is a headache for Google given the ongoing copyright issues with the music and movies industries. Google will add its advertising to the site and gain revenue that way although it might have to fight a few law suite's along the way.

 

YouTube does fit with its motto of organising the worlds information.

Todays articles for you to have a comment on?

 

Google seeks to defuse row over copyright

 

In every area where Google has pushed, it has been over the line

 

By Stephen Foley in New York

 

Published: 11 October 2006

 

Google is setting out to mollify critics in the media industry who say the internet pioneer infringes their copyright, with promises to work with newspapers on a new licensing system, to work with publishers to boost book sales, and to work with film-makers to help them profit from clips uploaded to YouTube.

 

Its conciliatory stance comes as the media industry begins to fight back against the company, claiming that Google is building a rival media empire under the guise of "organising the world's information". Their fears have only been exacerbated by the news that Google is paying $1.65bn (£890m) to buy YouTube, one of the fastest-growing entertainment sites on the web where, every day, visitors watch more than 100 million video clips uploaded from web cams or copied from television and DVDs.

 

Already Google is facing serious legal assaults on two of its major projects: Google News, which aggregates the headlines of 4,500 news organisations around the world into a rolling-news front page of its own, and Google Books, which plans to digitise every book ever published and make them all searchable online.

 

Google and content publishers agree on one fundamental: copyright laws should be respected. They disagree, though, on two important questions: whether Google is already infringing copyright, and how publishers should be compensated when copyrighted material is used.

 

"What characterises Google is its very aggressive approach to copyright law," said Lee Bromberg, a partner at the Boston-based law firm Bromberg & Sunstein. "My own view, as someone who often defends intellectual property, is that in every area where Google has pushed it has been over the line, but it has an interesting carrot-and-stick approach.

 

"The carrot is your content gets to be displayed to Google's vast army of users, which increases rather than diminishes its commercial value to you. The stick is that it says it is just going to access your content as part of the plan to control and organise our knowledge, and that it is up to you to opt out. Well, you can't burden the copyright holder with an obligation to demand their content is not used."

 

Google started out to catalogue the world wide web, and as an index it had no obligation to pay for the snippets of websites that appear in response to search queries. It says the same applies to news articles it displays on Google News or the books that it is copying to its vast electronic database.

 

In both cases, it says it is covered by "fair use" provisions of copyright laws around the world, which allow for the use of snippets for the purpose of indexing and review, but it may find it has to defend its position in court in several jurisdictions.

 

It may be most vulnerable in Europe, where copyright law often asserts "moral rights" as well as prescribing specific tests. A Belgian court last month found Google News infringed copyright and it has been forced to take down all the content from Belgian news sources; Agence France-Presse is suing in France and the US. Google plans to keep fighting both cases.

 

The content providers are arguing that Google is qualitatively different from a library room full of card indexes: the company is now making more than $16m a day from adverts on its websites.

 

The Google Books project will make electronic copies of every book with the help of seven libraries including those of Harvard, Oxford University and the New York Public Library, but Google insists it will only allow access to the full text if a book is out of copyright.

 

In other cases, click a book title and users will see, like a card-catalogue entry, some basic information about the book. They may also see a few snippets of text from the book showing their search term in context. Only if the publisher or author has given permission through Google's partner programme will the user be able to see a few full pages from the book. In all cases, the user will see links that lead directly to online bookstores where they can buy the book.

 

The Association of American Publishers and the Authors Guild have launched lawsuits against Google, however, saying that the company is breaching copyright by creating electronic copies of their books without express permission. Google says publishers should be grateful. "You'd sell a lot more books if a lot more people knew about them," it tells them.

 

Angela Mills Wade, director of the European Publishers Council (EPC), said: "The problem is we don't have control over what they are doing with the content. They may just be pointing to it today, but in order to display extracts they have to have a copy, and who knows how search engine businesses will develop and publishers' business models will develop."

 

Notwithstanding its contention that Google News and Google Books do not infringe copyright, Google promised yesterday that it would work with a new global coalition of newspaper groups and European publishers, which is planning to develop technology that will make it possible to automatically license content to search engine sites and news aggregators.

 

At the moment, newspapers can demand that links to their stories do not appear on Google News, and they can embed a computer code into their web pages that prevents them from appearing. What the World Association of Newspapers - chaired by Gavin O'Reilly, the chief operating officer of Independent News & Media, the owner of The Independent - proposes is a more sophisticated technology that will automatically allow search engines to sign and even pay for licences to use the content.

 

Ms Mills Wade of the EPC, which is also involved in the project, said: "You could sue them when they go beyond legal extracts, but who the hell wants to spend their life going to court? That should be a last resort for publishers and it would be immensely tedious for Google."

 

The embedded code will be called Acap, an automated content access protocol, and a trial, involving several media companies and at least one search engine, will be announced next month. Google said it was "supportive of any proposal that allows search engines and publishers to work together" and offered to help develop the new technology, but it warned that the devil would be in the detail.

 

Publishers hope that, by making it easy to sign and pay for a licence to use their digital content, more aggregator sites will do so. Earlier this year, Google signed a deal with Associated Press to use larger chunks of their news content on Google News and to pay for the privilege.

 

Google would prefer not to adopt a widespread licensing model, however, where it would have to pay a lot of upfront fees. It would prefer revenue-sharing partnerships such as those being signed by Google Video and YouTube. Sony BMG and Warner Music are among those to have said they will put all their music videos on YouTube in exchange for a cut of the revenue from advertising sold alongside them. Google Books' partnership programme works along the same lines.

 

David Eun, head of content partnerships at Google, said: "By enabling people to discover information, Google drives web traffic, customer queries, advertising revenues and sales to our partners, both online and offline."

 

 

 

Cashing in online: The dot.com richest list

 

The sale of video-sharing site YouTube to Google for $1.65bn proves you can still earn a fortune as an internet entrepreneur. Andrew Gumbel and Jonathan Brown look at who's making most

Published: 11 October 2006

 

It is only six years and seven months since the dot.com bubble of the late 1990s went pop. The previous years had seen a bewildering array of strangely named start-ups command vast sums of cash from apparently hard-headed businessmen and women based on little more than vague promises of profits in the distant future.

 

This week, it looked like someone had pressed the rewind button when the internet behemoth Google snapped up YouTube for $1.65bn (£900m). The free-to-use video service showcases short clips of everything, from teenagers lip-synching pop tunes in their bedrooms to grown men fist-fighting, and is the fastest-growing site on the web. Its acquisition elevates Chad Hurley and Steve Chen, YouTube's founders, to the ranks of the super-rich.

 

But according to conventional industry wisdom, theirs is a fortune based on sound economic principles. This time, analysts say, unlike the start-ups of the Nineties, the new companies are already thriving enterprises. And they are being bought up by existing media companies - witness News Corporation's purchase of online community MySpace.

 

Perhaps the most important difference between then and now is the establishment of a functioning business model - companies have learnt how to turn the internet into cold, hard cash. Google sells $10bn worth of advertising a year, turning a profit of $2.4bn. Not bad for a company that 10 years ago was little more than a student research project. The other step change is that many companies are using the acquisitions to improve their existing businesses.

 

On Monday, Universal Music Group signed a distribution deal with YouTube, following CBS, which will offer news and sport. Google said it had signed deals with Sony BMG and Warner Music to offer music videos.Larry Page and Sergey Brin - Google

 

Estimated personal worth Combined fortune of £14bn

 

Age 33 (both)

In 1996, they were two Californian PhD students puzzling over a more convenient and efficient way to search for websites on the then embryonic worldwide web. Their idea of ranking sites according to popularity and importance was to prove perhaps the most incredible business innovation of the age. It has even been hailed a modern wonder of the world.

 

Today, Google has become not just a company but a verb - and a gateway into virtually any subject, service or product that exists. It is estimated that more than half of all internet inquiries go through the Google website. Under Page and Brin, the company has built a unique corporate culture with the philosophy Do No Evil. Employees are encouraged to spend 20 per cent of their time on projects that interest them. At just 33 years of age, the two are now among the richest people on the planet.

 

Mark Zuckerberg - Facebook.com

 

Estimated personal worth (based on market capitalisation) At least £530m

 

Age 22

Mark Zuckerberg launched Facebook in 2004 as a user-friendly social directory to overcome the notoriouslystand-offish culture at Harvard, where he was a student. The idea caught on like wild fire. By now Facebook - a sort of MySpace for higher education - has almost 8 million registered users on more than 2,000 campuses. Zuckerberg, an enthusiastic programmer who happily skips meals and sleep for his passion, has taken a leave of absence from Harvard and bases his company out of California's Silicon Valley. He is the product of a wealthy background and elite schooling at establishments such as the Phillips Exeter Academy in New Hampshire, about the closest thing to Eton. Last month, he was reported to have turned down a $1bn buyout offer from Yahoo!, with rumours suggesting he asked Yahoo! to double its offer.

 

Robin Li - Baidu.com

 

Estimated personal worth (based on market capitalisation) Around £1.6bn

 

Age 38

 

Baidu.com is a Chinese search engine that remains the undisputed market leader in its home country, despite attempted inroads made by the likes of Yahoo! and Google. Because of the size of the Chinese market, it is the fourth most-visited website in the world. Robin Li was a graduate of Beijing University who came to the United States to pursue postgraduate studies after the Chinese government crackdown in Tiananmen Square. By the late 1990s, he was a disgruntled employee at Disney's portal Infoseek.com, and looking for a venture of his own. As the dot-com bubble burst, he took $1.2m (£640,000) in start-up capital back to China and took advantage of the burgeoning local economy to become his very own powerhouse. Baidu works much like Google, but has its own features such as a popular multimedia search function.

 

Chad Hurley and Steve Chen - Youtube.com

 

Estimated personal worth (based on market capitalisation) £265m-£530m each

 

Age 29 (Hurley) and 27

 

Chad Hurley and Steve Chen may command a staff of just 67 but that didn't stop Google swooping on their business start-up this week for $1.6bn. Both were employees of PayPal, the online secure payment service, who came together in February 2005 with another PayPal colleague, Jawed Karim, to found what was destined to become one of the fastest-growing websites ever. YouTube, based near San Francisco, is a free video service giving users access to anything from funny moments from the week's television to home videos shot with mobile phones. Hurley is the designer; Chen and Karim were students in the University of Illinois' computer science department. They started their business in a garage, but were given a jolt when Sequoia Capital - the Silicon Valley venture capital firm that helped bankroll Yahoo! in the 1990s - injected first $3.5m and then $8m. The company uploads 65,000 new videos a day and around 100 million clips are viewed each day. Karim has left to pursue an advanced degree at Stanford.

 

Michael Birch - Bebo

 

Estimated personal worth (based on market capitalisation) In excess of £160m

 

Age 36

An ex-pat Brit living in San Francisco, Birch came up with Britain's answer to MySpace and Facebook. Bebo is a social networking site that is particularly popular among schoolchildren and university students. The service was launched in July 2005 and is already estimated to have 25 million users. In Britain, it is second only in popularity to MySpace. In Ireland, where it took off with particular verve, it clocks as many as 20 million page clicks per day. Birch, along with his wife and partner Xochi, was wise to the social-networking buzz very early on. His first venture, called Ringo.com, was an early foray into the field which he later sold to Tickle, now part of the recruitment site Monster. Viacom is reported to have offered him $750m for the new company, which he turned down. Other valuations put Bebo at a minimum of £160m.

 

Nick Denton - Gawker Media

 

Estimated personal worth (based on market capitalisation) About £145m

 

Age 39

 

An Oxford-educated Brit, Denton started writing about blogs as a reporter for the Financial Times, where he was a foreign correspondent and wrote a book about the collapse of Barings Bank. A huge internet fan, he made the transition from blog analyst to blogger and then blog entrepreneur. Gawker Media is an umbrella for several blog enterprises, including Gawker (Manhattan news and gossip), Wonkette (Washington politics), Defamer (showbiz gossip) and Fleshbot (pornography). Denton has played the society card adeptly, appearing in a Vanity Fair photoshoot and schmoozing with Arianna Huffington, another former journalist turned blog entrepreneur. His celebrity-sighting Gawker Stalker site provoked a response from George Clooney who urged his fans to flood the site with bogus sightings to discredit it.

 

Niklas Zennström and Janus Friis - Skype and Kazaa

 

Estimated personal worth (partly based on market capitalisation) In excess of £688m each

 

Age 40 (Zennström) and 30

 

Zennström, a Swedish business and computer-science graduate, and Friis, a self-made Danish entrepreneur with no formal higher education, first hooked up at Tele2, a pan-European telecom operator, then went on to co-found two of the highest-profile peer-to-peer web services of recent years: Kazaa and Skype. Kazaa emerged in the wake of the Napster file-sharing controversy and offered web-users a similar function: sharing MP3 files, videos and other applications over the web and downloading them from one computer to another. They sold it to an Australian company before the inevitable lawsuits started flying and are now footing many of the legal bills. Altogether more successful was Skype, the free Internet telephone service, which they recently sold to eBay for $2.6bn.

 

Tom Anderson and Chris DeWolfe- MySpace

 

Estimated personal value

 

About £148m each

 

Age 30 (Anderson) and 40

 

Nothing like a literary critic to start a web craze. Tom Anderson, left, a graduate both of the rhetoric and English programme at the University of California's Berkeley campus and the film school programme at UCLA, hooked up in 2003 with a business-school whizz called Chris DeWolfe and together they formed MySpace - now virtually a synonym for social networking online. MySpace is where people of all ages tell the world about themselves, post photographs, lists of favourite records and films, and invite friends to come visit and leave messages. By now it is the fourth-most popular English-language website and the sixth-most popular worldwide. Based in Santa Monica, California, its parent company, Intermix Media, was bought by Rupert Murdoch's News Corporation in July last year for $560m. It seemed a lot of money at the time but now looks like the bargain of the new century.

 

Andrew Black - Betfair

 

Estimated personal wealth £100m, company valued at peak at £1.5bn

 

Age 43

Launched on Oaks Day in 2000, Andrew Black and his partner, Jeremy Wray, warned their new Internet betting exchange would spell the end for the traditional bookmakers. Betfair allows punters to bet against each other at more favourable odds than High Street bookies, with the company taking a percentage of the winnings. Business was brisk from the off, with £35,000 of bets placed in the first week. But demand has soared. In 2005 the industry was worth £5.2bn in the UK. Betfair has seen its profits grow by 146 per cent a year from £1.6m in 2002 to £23.2m in 2005. More than 400 people are employed in the business and a recent offer by a Japanese technology group valued Betfair at £ 1.5bn. However,profits look set to fall after the US Senate announced legislation that will outlaw payments to online betting sites.

 

 

Jeremy Warner's Outlook: Copyright? What on earth is that? Neither Google nor YouTube recognise the word

Inflationary pressures are still with us; London success, investor distress

Published: 11 October 2006

 

For Google, a company now valued by the stock market at about $130bn, the $1.65bn paid for YouTube represents little more than small change. If Google were paying in cash, then more eyebrows might have been raised; instead it is paying in its own already highly valued paper. Google is thus hardly betting the ranch. Even if YouTube never makes a penny of profit, the damage will barely register.

 

All the same, this is an awfully large sum of money for a website that is both less than two years old and, as things stand, generates hardly any revenues. Is this, and other apparently fabulous prices paid for similarly vacuous businesses over the past year or two, a return to the madness of the dot.com bubble? The answer is both yes and no.

 

With YouTube, only an established search engine would and could have paid such a price, for only a search engine, with its click-through advertising model, would be capable of monetarising the content on the scale necessary to earn a rate ofreturn. Whether even the mighty Google can justify the valuation is open to question, but with technology which is second to none in matching advertising to content, it is certainly better placed than anyone else to do so.

 

What's more, Google has already tried to do the same thing through organic means but has largely failed. Google Video is a distant also-ran in the market for video file sharing. In business, there is always something to be said for buying the competition, so the deal may justify itself on these grounds alone.

 

So far, so positive. Yet there is also a more sinister reason why Google is buying YouTube. It is to do with the fact that the two have a common set of business values in the sense that neither seems to care a fig about the law of copyright. Both rely on the use of free content to drive their business. They therefore have next to no cost, or at least one so marginal that it wouldn't be recognised by any traditional media company.

 

Google is the most talked-about business phenomenon of recent times. Its founders, Sergey Brin and Larry Page, are feted wherever they go like demi-gods for the wealth they have created and the revolution in business and lifestyles they have helped bring about. No doubt a great deal of this is justified, but I'm still not wholly convinced Google is a proper business. As a sustainable business model, it may even in time prove to be as transitory as the online gaming sites, many of which have been trounced by confirmation of what investors and users chose to ignore - that online gaming is illegal in the US.

 

Google and YouTube are based on a not dissimilar misapprehension. OK, so both are only too happy to remove content where breach of copyright can be demonstrated, but they are extraordinarily aggressive in the manner in which they attack the soft underbelly of intellectual property rights, and their basic philosophy is that all content should be free.

 

Insulated from the real world by their newly found billions, it must be nice for Messrs Brin and Page to think this is true. In fact, all content, like any other form of produce, must ultimately be paid for, and if all Google is doing is acting as a supermarket for, or an aggregator of, other people's stolen goods, then in the long run it might have something of a problem.

 

Google and YouTube are routinely in massive breach of copyright. The fact that this seems to be tolerated is almost as odd as the phenomenon itself of one of the world's most admired companies being based on such a legally dubious business model. Yet the legal challenge to Google has so far been half-hearted.

 

At YouTube, some of the music majors have adopted the view that if you cannot beat them you must join them, and signed up to revenue-sharing deals on anything that might be generated by their material. Even so, breach of copyright remains the core issue for any business that relies on file sharing. Google and YouTube do just that. Napster and some of the other file-sharing sites that devastated the music industry have been defeated. Google and YouTube have yet to be similarly challenged.

 

It makes perfect sense for Google to buy YouTube. Based on similar philosophies, the two fit together like hand in glove. But the valuations are powerfully reminiscent of the mistakes that were made in the original dot.com boom seven or eight years back. The thinking relies on the idea that the wheel has in some way been reinvented - and that the traditional laws of business have been suspended. You'll forgive my scepticism.

 

Inflationary pressures are still with us

 

The last time the Governor of the Bank of England, Mervyn King, made a keynote speech, the press was unanimous in its interpretation. What the Governor was saying, said one newspaper, was that interest rates would definitely need to rise further. Another said his speech was neutral for rates while a third interpreted his comments as meaning that rates would soon be falling. You pays your money and you takes your choice.

 

So, making a speech in the Great Hall, Winchester, last night, Mr King was at pains to save commentators any further anguish. Nothing in his speech, he said, was intended as a hint of what the decision on rates would be in November, which will be based on the outlook for inflation two years hence at that time. Much could change between now and then.

 

Well, some warnings are meant to be ignored, so, with the Governor's words ringing in my ears, here's how I think his speech should be interpreted. One thing he did seem to be saying was that just because energy prices are now quite a bit lower than they were last summer doesn't necessarily mean that wider inflationary pressures are easing. After a prolonged squeeze on margins, many companies will use the lower costs and greater demand brought about by falling oil prices to try and raise their own prices.

 

Indeed, this seems to have been a pattern during the exceptionally long period of low inflationary growth the British economy has experienced in recent times. Prices do not tend all to rise together at the same rate. Instead, some prices will be climbing rapidly just as others are falling. What's more, it is still not entirely clear that earnings growth has been sufficiently restrained to accommodate past rises in energy costs. Many companies will attempt to use the reversal in energy costs to rebuild profit margins by putting up their prices.

 

Again, it is not yet clear to what extent the growth in the workforce - through immigration and longer working - will continue to be a braking influence on earnings growth. Mr King has said before he thinks the "nice" decade is over - "nice" standing for non-inflationary consistent expansion. Yet "nice" has so far given way only to "not so bad", so though Mr King does perhaps continue to make the case for higher rates, for the time being nobody should expect them to rise back to the punishing levels seen before the "nice" decade started.

 

London success, investor distress

 

One down, 20 to go? If common sense prevailed, the ejection of PartyGaming from the FTSE 100 would be the start of a cull which would see numerous others axed from an index which has become bizarrely unrepresentative either of UK commerce or even the global economy it pretends to track.

 

Indeed, the various FTSE indices are really only representative of one thing these days - London's astonishing success in attracting overseas listings. Provided the activity is not actually illegal in the UK and the prospectus contains the requisite barrow load of health warnings, almost anything goes. This open-door policy to listing is obviously good for the investment bankers and the vendors; it may not be quite so good for the passive investment funds forced to track these indices, as the disaster of the online gaming industry only too clearly demonstrates.

 

j.warner@ independent.co.uk

 

 

I really hope google doesn't buy it.. the youtube people could make so much more money from youtube and keep the site great if they keep it.

I hope google don't use this as step towards stopping music promotion via video.