Google finally buys YouTube in $1.65-bn deal

Source : www.reuters.com
Dated : 10/10/2006

Google bought hot young video-sharing website YouTube on Monday in a $1.65-billion stock deal that the companies proclaimed was a natural for the evolving Internet.

The acquisition married Google's online search prowess with a video-sharing website renowned for devotees but not revenues. "With Google's technology and search leadership we will have the resources to take our services to the next level," YouTube co-founder Steven Chen said during a telephone press conference with Google executives.

"We believe this is just the beginning." YouTube soared to online popularity after its launch in February 2005. The company claims that more than 100 million videos are watched daily by visitors to the free website, which features content ranging from silly home videos to snippets of Hollywood films, television shows and concerts.

Google said that it was drawn to YouTube because it was the clear market leader and had put together a "remarkable team" in a short time.

"We think one of the keys to comprehensive search experience will be video," said Google co-founder Sergey Brin. "On the whole it is hard for me to imagine a better fit with another company. YouTube really reminds me of Google just a few short years ago."

Google's stock price rose slightly to $431.75 a share in trading that followed the announcement of the deal, which came after the close of the financial markets in New York.

"It will be interesting to see what happens next and what happens in the copyright world," outspoken billionaire investor Mark Cuban wrote in a fresh weblog entry titled "I still think Google is crazy."

"I still think Google lawyers will be a busy, busy bunch." Cuban has referred publicly to YouTube as a lawsuit magnet because users freely upload digitized videos, television shows and other copyrighted material.

The blockbuster deal was announced on the same day that Google and YouTube unveiled agreements with major studios to post copyrighted music videos online.

The agreements were seen as efforts to pre-empt accusations of rampant copyright infringement at the online video-sharing sites and enlist studios as potential beneficiaries of the trend.

The pacts will rely on advertising to generate revenues by encouraging users to click on companies' links alongside the videos. YouTube was putting new systems in place to "fingerprint" copyrighted material so it could be tracked, said YouTube co-founder Chad Hurley.

Google and YouTube engineers already have dozens of ideas for handling ads, searches and videos, according to Google chief executive Eric Schmidt. "Most people believe that this is just the beginning of a video Internet revolution," Schmidt said. "I think there is a whole new ecosystem and we are expecting to be a part of it."

"Our community has played a vital role in changing the way that people consume media, creating a new clip culture," Hurley said. YouTube will continue to operate independently with its headquarters in San Bruno, California, after the acquisition is complete, according to Google.

In Silicon Valley tradition, YouTube was launched on its meteoric rise from a garage. In its first foray seeking external funds, the company raised $3.5 million from Sequoia Capital in November 2005. In the newest deal, though, Google will pay for YouTube with shares of its own high-flying stock.

By purchasing YouTube, Google would be able to apply its proven prowess for generating revenue through online advertising. YouTube meanwhile will provide Google traction in the online video-sharing market, where Google's own video service has failed to take off.

"This is the next step in the evolution of the Internet," Schmidt said. "It is a natural next step." The deal is expected to be culminated by year-end provided it clears regulatory requirements.

Meanwhile, Google Video "will not go away now, or ever," Schmidt said.