Google Is in Talks to Buy YouTube
By KEVIN J. DELANEY
October 6, 2006 3:37 p.m.
Google Inc. is in talks to acquire popular video-sharing site YouTube Inc. for roughly $1.6 billion, according to a person familiar with the matter. The discussions are still at a sensitive stage and could well break off, this person says.
A spokeswoman for YouTube could not be reached for comment. A Google spokesman said, "We don't comment on rumors and speculation." Rumors of such talks were reported earlier on the TechCrunch blog.
Founded in February 2005, closely-held YouTube is the poster child for the boom in online video. The company says consumers view videos -- which range from short home videos to clips recorded from TV shows -- over 100 million times daily through its service and upload more than 65,000 videos each day. YouTube, San Mateo, Calif., has efforts underway to generate more advertising revenue from such traffic. At the same time, it's trying to address some media companies' concerns about the presence of video on YouTube's site that was uploaded without the content owners' permission.
A purchase of YouTube could give a big boost to the online video efforts of Google. YouTube commanded 46% of visits to U.S. online video sites in August, according to market research firm Hitwise. That compared to a 23% share for the video activities of News Corp.'s MySpace social-networking site, and 10% for Google Video.
Analysts said a Google acquisition of YouTube would make sense for both companies.
"It's damn cheap for a company that already has a global presence," said Trip Chowdhry, an analyst with the San Francisco-based Global Equities Research. "YouTube's brand identity is no less than Google's and is no less than Coke's.''
Still, many of the site's videos contain copyright material, putting it at odds with big media companies such as Universal Music Group. YouTube immediately removes videos when copyright holders complain, but analysts said the company is still in a precarious legal position.
"Google would be taking on all that liability," Forrester Research analyst Josh Bernoff said.
But Google also could present a solution, Mr. Bernoff said, noting that the software innovator could develop automated systems to block attempts to post copyright materials. He also said Google's size and clout gives the company much more leverage than YouTube to negotiate deals with copyright holders.
The discussions are the latest evidence of a land grab underway by Internet and media companies looking to extend their reach on the Web. Yahoo Inc. and other technology and media companies have held discussions about acquiring social networking site Facebook Inc. for amounts in the range of $1 billion or higher, say people familiar with the matter. News Corp. spent $650 million to buy MySpace last year.
Rumors circulated earlier this year that some major media companies expressed interest in buying closely-held YouTube. Chief Executive Chad Hurley said at the time that the company was not for sale and an IPO in the future was a possibility.
The transaction would mark one of the largest acquisitions for Google. To date, the Mountain View, Calif., firm has focused mostly on smaller targets such as Pyra Labs, the company behind the Blogger service, online photo-search firm Picasa and satellite-mapping company Keyhole. Google has spent heavily to secure places to display and broker ads. In August it pledged $900 million in payments to MySpace to broker ads on the site, and in December it paid $1 billion for a stake in AOL as part of an advertising pact.
YouTube has stood out from the growing crop of online video services for its simplicity. YouTube serves up videos that generally can be viewed without users downloading special software. It also let consumers display its videos on other sites, such as blogs or personal pages on MySpace.
Last month, the company announced a new system to give media companies more control over the video on the site and to address their fears that others will profit from consumers' piracy of their content. Warner Music Group is the first entertainment company to embrace the system. It will post its catalog of music videos on YouTube and collect an unspecified percentage of the revenue from advertising appearing alongside them.
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