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November 08, 2006

No $500 million reserve for YouTube

posted by MR WAVETHEORY at 11/08/2006 04:46:00 PM

Google Inc. (Nasdaq GOOG) is denying that there is a $500 million reserve on the purchase of YouTube.
Chief Executive Eric Schmidt on Tuesday denied a widely circulated rumor
that his company had set aside $500 million to settle copyright claims by media
companies as part of its deal to acquire video-sharing site YouTube Inc.

Speaking to more than 500 Internet industry insiders at the annual Web
2.0 Summit, Schmidt said an anonymous blog post asserting YouTube has reserved
$500 million for legal claims, out of the $1.65 billion takeover price, was "not
true."

It seems as if many people had misinterpreted Mark Cuban's original post. I believe the post meant that instead of having a $500 million reserve, Google gave the media companies equity stakes in YouTube prior to the deal closing. That's how I read it.

I have to give the folks there brownie points for being very creative on
the structuring. YouTube was going to set aside $500 million for copyright
infringement claims but instead it offered the big media companies each an
equity stake of $50 million each so that they would have a cease fire for 6
months in which big media like Viacom Inc. (NYSE
VIA), Warner Music Group Corp (NYSE WMG), and Universal would not sue. $50 million that was immediately worth a lot more in the hours after the deal was announced with Google Inc. (Nasdaq GOOG).

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