October 9, 2006 - Google, Inc. has just confirmed that they will be acquiring YouTube, currently one of the fastest growing internet companies for as little as $1.65 billion in stocks. The announcement has stirred the internet community as the largest online video sharing community merges with Google’s funds and expertise in providing web users with top-of-the-line virtual experience. According to Eric Schmidt, Chief Executive Officer of Google, "[YouTube and Google] are natural partners to offer a compelling media entertainment service to users, content owners and advertisers ("Google to Acquire YouTube for $1.65 Billion in Stock",)." Similarly, YouTube CEO and co-founder, Chad Hurley said in a statement that "[the internet community] can benefit from its global reach and technology leadership to deliver a more comprehensive entertainment experience for [the] users… ("Google To Acquire YouTube for $1.65 Billion in Stock, 2006", )"
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The $1.65 Billion valuation of YouTube of course meets the rumored valuation demand of YouTube. According to rumors in an article published in New York Post, the video streaming company would not consider any merger offer below $1.5 Billion ("YouTube - The Complete Profile", 2006). With the Google acquisition, YouTube not only proved their value but also showed certain billionaires such as Mark Cuban (who was caught saying that "anyone who buys YouTube is a moron") ("YouTube - The Complete Profile", 2006) that the future could be worth billions if all "morons" were as big as Google.
As much as this news is new and definitely big in all aspects, what puts this merger to the front page of the virtual network is the speed in which a small, independently-funded company is able to attract such huge proposals from internet giants such as Google. To give a brief background of YouTube for those who have not been paying attention, the company was founded by three people who used to work from Paypal: Chad Hurley, Steve Chen and Jawed Karim. The domain name, "YouTube.com" was registered on February 15, 2005. Public preview of the site was in May of the same year. Six months later, YouTube was officially launched with a $3.5 million fund from Sequoia Capital. A few months later, with the upward trend in popularity of YouTube, Sequoia put an additional $8 million in the company. Sequoia Capital previously funded Google, Yahoo! and Apple ("YouTube - The Complete Profile", 2006).
It would also be interesting to note that YouTube has been rumored for acquisition with companies such as Viacom, Disney, and Sony in the past ("YouTube - The Complete Profile", 2006). Some rumors also say that Yahoo showed interest in YouTube but obviously, no deal transpired ("Yahoo! Facebook - Still on?" 2006).
For fans and critics of the merger alike, the question is, what is the future of YouTube now that it has been acquired by Google? According to an article published by Google itself ("Google to Acquire YouTube for $1.65 Billion in Stock", 2006), YouTube will be an agglomeration of their brand identity and Google’s own fast-growing video business. In addition, it will continue to employ its 67 previous employees and will still be based in California ("YouTube", 2006).
In terms of finances and profits, in spite of the $1 Million a month bandwidth costs (and increasing), YouTube is expected to generate from $230 Million in revenue in 2005 to $1.7 Billion in the next five years (Frommer, 2006).
Over a hundred million clips are viewed everyday on YouTube plus the average of 65,000 new uploaded videos every day. This is according to a survey done in July 16, 2006 ("YouTube", 2006). Nielsen/NetRatings says that YouTube has an approximate 20 million visitors everyday ("YouTube", 2006). The status of this statistics will determine the financial future of YouTube.
Prior to the acquisition, during its first months, and with the service being free, YouTube was relying on the $11.5 million venture capital provided by Sequoia. The company only started to cash-in in March when they started selling ads (Frommer, 2006).
Meanwhile, with Google as the new godparent, YouTube is starting to bank on their collaboration with entertainment companies CBS Corp., Sony BMG Music Entertainment and Universal Music Group: CBS Corp is said to be providing video content for their own "brand channel" which they would feature in YouTube’s site; Universal offers access to lots of music videos which would not in any way harm the artists. Universal offered the artists compensation for the videos; Sony allows the inclusion of their catalog songs on the users’ video uploads. CBS and Sony expect to share advertising revenues with Google-YouTube. Universal prefers not to disclose any financial details of their deal ("YouTube Signs on CBS, Universal and Sony", 2006).
The nature of YouTube is almost similar to File Sharing networks in that it provides the users with free access to media content. But despite this very nature, YouTube has been very careful not to allow many lawsuits add to their already huge expenses. Their deals with CBS Corp, Universal Music Group and Sony BMG Music Entertainment, for example, involve pulling all resources to find and remove copyrighted content and also compensating artists in videos used in the site. According to YouTube CEO, Hurley, "YouTube is commited to balancing the needs of the fan community with those of copyright holders ("YouTube Signs on CBS, Sony, Universal", 2006)."
Despite the caution imposed by YouTube, especially regarding copyright infringement, the company has no control over the actions of its users. At present, the only way that YouTube could identify video content is through search terms. In addition copyright infringement could only be discovered through indications given by the community or by searching the loads of videos themselves ("YouTube", 2006). It is relatively fortunate for YouTube to only receive just one lawsuit in their first year. Robert Tur, a TV journalist filed a case against the company for copyright infringement. Other complaints could be settled down by YouTube by taking the concerned videos down ("YouTube - The Complete Profile, 2006; YouTube", 2006).
Aside from issues on copyright, YouTube has also faced problems on social accusations such as inciting violence and as being used as political medium. There has been videos uploaded criticizing certain US administrations and parties as well as those criticizing Islam ("YouTube", 2006).
How YouTube without Google has done it from independent site to a phenomenon for the past year has been witnessed. YouTube with Google is yet to be seen.
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