Google Confirms YouTube Deal
The news about Google’s plans to acquire YouTube has proven true. Google has just announced that it will acquire YouTube in a stock-swap deal worth US$ 1.65 Billion.
MOUNTAIN VIEW, Calif., October 9, 2006 - Google Inc. (NASDAQ: GOOG) announced today that it has agreed to acquire YouTube, the consumer media company for people to watch and share original videos through a Web experience, for $1.65 billion in a stock-for-stock transaction. Following the acquisition, YouTube will operate independently to preserve its successful brand and passionate community.
Offhand, I see the deal benefitting both parties this way: Google gets YouTube’s userbase and community (along with the market data YouTube has gathered so far and continues to do so), and YouTube gets better accesss to revenue streams from advertising.
ForeverGeek has a post detailing interesting opinions on why this deal makes sense. The post basically reasons that acquiring YouTube is one way Google sets itself ahead of the pack. Video advertising is expected to be the next best thing, and Google is already positioning itself as the leader, when its competitors (Yahoo!, MSN, etc.) are still starting to fiddle with contextual text-ads.
Also, it’s the YouTube brand that’s likely to be the most important aspect of the acquisition. YouTube already has excellent mindshare, and Google knows that this is just what makes a successful web application. With the large community already revolving around YouTube, Google can expect tons of market data. Everything else is just icing on the cake.
If this turns out to be a synergy–where the acquisition will produce more value for the larger entity, as opposed to each running on its own–then good. If it fails, it probably won’t make much of a dent on Google’s bottomline. $ 1.65 Billion is just a small amount considering Google’s performance so far and earning potential. And no cash changed hands, after all. It’s a stock-swap!
Implications to television
I’m a fan of Web videos because it’s one form of video-on-demand. I get to do searches on videos and watch them when and where I want to. Admittedly, I do watch some show episodes on YouTube, and the very presence of those videos is against the site’s terms of service, because they are copyrighted material.
With Google entering the picture, there had been speculations that YouTube will be facing lawsuits left and right because they will now start earning revenues off other people’s copyrighted material–this is no longer within fair use principles. But with Google on the business side, it might be able to strike a compromise. Why not do what the television networks are doing? Why not show advertisements (text ads, and even video ads) along with the freely-viewable videos, and give the copyright owners a cut? In my opinion, pay video is bad in that it limits the viewership, and does not satisfy the audience, because of low quality of Web-videos.
As for the traditional television routes (free TV, cable, PVRs), this could spell trouble. Google is known to own tons of dark fibre running across the entire United States (the company has been buying defunct ISPs and broadband providers). Once it decides to start using these to boost bandwidth across the country, then Google could just be creating the next big multimedia network since TV was invented.
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