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Archive for Tuesday, October 10, 2006

Deal unites Google, YouTube

October 10, 2006

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— Internet search leader Google is snapping up YouTube for $1.65 billion, brushing aside copyright concerns to seize a starring role in the online video revolution.

The all-stock deal announced Monday unites one of the Internet's marquee companies with one of its rapidly rising stars. It came just a few hours after YouTube unveiled three separate agreements with media companies to counter the threat of copyright-infringement lawsuits.

The price makes YouTube Inc., a still-unprofitable startup, by far the most expensive purchase made by Google during its eight-year history. Last year, Google spent $130.5 million buying a total of 15 small companies.

Although some cynics have questioned YouTube's staying power, Google is betting that the popular video-sharing site will provide it an increasingly lucrative marketing hub as more viewers and advertisers migrate from television to the Internet.

"This is the next step in the evolution of the Internet," Google Chief Executive Officer Eric Schmidt said during a conference call Monday.

YouTube will continue to retain its brand, its new headquarters in San Bruno and all 67 employees, including co-founders Chad Hurley and Steve Chen. Meanwhile, Google will continue to run a less popular video service on its own site.

The deal is expected to close before the end of the year.

YouTube has drawn comparisons to the original Napster, the once-popular music sharing service that was buried in an avalanche of copyright infringement lawsuits filed by incensed music companies and artists.

While most videos posted on YouTube are homemade, the site also features volumes of copyrighted material - a problem that has caused some critics to predict the startup eventually would be sued into oblivion.

But Hurley and Chen have spent months cozying up with major media executives in an effort to convince them that YouTube could help them make more money by helping them connect with the growing number of people who spend most of their free time on the Internet.

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