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November 02, 2006

The Real Skinny on the YouTube Deal

posted by MR WAVETHEORY at 11/02/2006 10:02:00 AM
If you're a YouTube watcher, you should read the post by Mark Cuban on the 11th hour wrangling over the YouTube deal and how the deal got done. The email posted on Cuban's site is written by an industry insider and shows how big deals get done, because it almost didn't - until the Big G decided to pony up some equity.

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).

> The first request was a simple one and that was an agreement to look
> the other way for the next 6 months or so while copyright infringement
> continues to flourish. This standstill is cloaked in language about
> building tools to help manage the content and track royalties, some of
> which is true but also G knows that every day they can operate in the
> shadows of copyright law is another day that Youtube can grow. It
> should be noted that Google video is a capable Youtube competitor with
> the ONE big difference being a much more sincere effort to not post
> unauthorized works - and Google fully appreciates what a difference
> that makes. So you can continue to find movie clips, tv show segments
> and just about every music video on Youtube today.
>
> The second request was to pile some lawsuits on competitors to slow
> them down and lock in Youtube's position. As Google looked at it they
> bought a 6 month exclusive on widespread video copyright infringement.
> Universal obliged and sued two capable Youtube clones Bolt and
> Grouper. This has several effects. First, it puts enormous pressure on
> all the other video sites to clamp down on the laissez-faire content
> posting that is prevalent. If Google is agreeing to remove
> unauthorized content they want the rest of the industry doing the same
> thing. Secondly it shuts off the flow of venture capital investments
> into video firms. Without capital these firms can't build the data
> centers and pay for the bandwidth required for these upside down
> businesses.

What is interesting about the post is the last tidbit:

> Infringement lawsuits will be served on Youtube and the new proud
> parent Google in the coming months. Google will respond with two
> paths: an expensive legal fight or a quick and easy settlement with
> most choosing the latter. Are there any larger copyright holders such
> as music publishers, movie studios, or unlicensed record label EMI
> that put up a fight rather than accepting the check? We'll have to
> watch and find out.

Read the full post: Some Intimate Details of the YouTube Deal

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