Google Looks To Boost Ads With YouTube

WITH IT'S $!.65 billion agreement to acquire YouTube Inc., Google Inc. will be able to broaden its online-advertising business and boosts its video offerings to meet the rapidly changing viewing habits of consumers.
The all-stock purchase announced yesterday (Oct. 9, 2006), of closely held YouTube, a 19-month-old, San Bruno, Calif. startup with 67 employees, highlights users' growing consumption of video online and the booming sales of Web advertising. The hefty price tag also reflects the interest of other media and technology companies in acquiring YouTube as a way to jumpstart their online video efforts.
The deal--the largest in Google's eight-year history-- marries Google's massive collection of computes, data lines and systems for serving up online ads from hundreds of thousands of advertisers with YouTube's leading position in playing videos for users on the Web. It could transform the Mountain View, Calif. based Google into a bigger power broker for the distribution of video online, following the mixed track record of its own online video efforts. YouTube has said that consumers view videos through its service, ranging from homemade videos to movie clips, more than 100 million times daily.
This is going to allow them to continue to develop features for their community and their partners, and allow them to sharpen their focus. They will be able to leverage the technology and resources of Google to supercharge their efforts in those areas.
The acquisition could also boost Google's ambitions to significantly broaden its as-brokering activities beyond simple text ads on Web pages to larger amounts of video advertising online. The Web search company places ads, often targeted by specific keywords, such as "Chicago hotel," on its own and partner sites using an automated online system and has said it intends t also broker ads in radio, print media and television.
They believe the combination of Google and YouTube will create this very new and interesting global media platform for users, content providers and advertisers all around the world.
The sale is a huge windfall for YouTube, which Mr. Hurley, 29, founded in Feb. 2005 in his garage along with chief technology officer Steve Chen, 28, and another former colleague from eBay Inc.'s PayPal electronic-payment unit. Mr. Hurley had said in a June interview that an initial public offering in the future was a possibility. But the offer from Google was attractive enough to lead YouTube to abandon that interest.
Some analysts raised questions about YouTube's priced tag. Critics said Google could be exposing itself to liability for copyright violations, since videos posted by users without permission of content owners are available through YouTube's site. The startup already faces one lawsuit related to this issue. YouTube has been racing to sign deals with media and entertainment companies to license their content and head off any additional litigation, generally agreeing to share online ad revenue with the content owners. The YouTube commitment to enforcing copyrights is very consistent with Google's.
A Microsoft spokeswoman said the company "evaluated acquiring this type of technology several months ago" but decided to build its own service, a test version of which opened recently.
In a prelude to the acquisition announcement, YouTube early Monday announced agreements with Vivendi SA's Universal Music Group and Sony Corp. and Bertelsmann AG joint venture Sony BMG to make their music videos available through YouTube and to allow consumers to use music from the two companies as soundtracks for their own videos on YouTube. The video site also signed a content and ad-revenue-sharing agreement with CBS Corp. related to video from CBS Television Network and Showtime Networks Inc. Google separately announced agreements with Warner Music Group Corp. and Sony BMG to make their music videos available through its video service.
YouTube's deal with Universal Music is particularly significant since Universal Music Chief Executive told investors last month that YouTube violates copyright laws by allowing users to post music videos and other content. Universal Music has considered taking legal action against YouTube over that issue, say people familiar with the matter.
Yahoo Inc., News Corp. and Microsoft Corp. were among the other companies that expressed interest in acquiring YouTube, say people familiar with the matter. YouTube had earlier passed on a lower offer from Google and held acquisition discussions with Yahoo, which tendered an offer in recent weeks, say people familiar with the matter. Yahoo's offer, valid for 24-hours, expired amid its concerns about copyright- and revenue-related issues though talks continued after the expiration, one of the people says.
Meanwhile, Google significantly increased its offer and deal talks between the two gathered intensity late Tuesday, when Google and YouTube drafted a term sheet, a person familiar with the matter says. In parallel, the two companies worked to complete content and as-revenue-sharing partnerships with the major music companies and CBS Corp. that were announced yesterday morning.
News Corp. sniffed around YouTube as recently as last week, but never made a firm offer because the startup said it was not for sale. On Friday, when the news of the Google negotiations surfaced, News Corp. sent a letter to YouTube asking for an opportunity to participate in the sale process. YouTube didn't respond. Behind the scenes, Google's deal to purchase YouTube is threatening to create a rift between Google and News Corp., which jointly made headlines in August with and ad brokering deal under which Goolge guaranteed revenue of $900 million over three and a half years to News Corp. for its MySpace social networking service and other sites. Over the weekend, News Corp. executives expressed their displeasure with the deal to Google and threatened to remove any links to YouTube videos placed by users on their MySpace blog pages, according to a person close to the situation.
News Corp. earlier this year held discussions with NBC Universal and Viacom about jointly building a YouTube rival. The three media companies discussed putting their television videos on a new site, but ultimately the talks foundered, these people say. This month, News Corp. announced it would put video clips from its Fox television shows up on MySpace.
YouTube's sale could represent a significant financial gain for venture capital firm Sequoia Capital, which has provided funding to the startup. Sequoia holds roughly 30% of YouTube. Under the sale agreement, YouTube will retain some independence, keeping its brand, offices and management. Google will also continue to operate its separate Google Video service.
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