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http://www.chicagotribune.com/busine...l=chi-news-hed
For $1.65 billion, Internet giant bets video is next big thing
By Eric Benderoff
Tribune staff reporter
Published October 9, 2006, 10:27 PM CDT
With its $1.65 billion purchase of YouTube.com, Google Inc. is buying a Web site made famous by quirky videos largely produced by amateurs.
Some 100 million video clips a day are viewed at the site launched in February 2005 by two twentysomething entrepreneurs, including a north suburban graduate of the University of Illinois.
Consider a video by a high school senior from Helena, Mont. Inspired by watching mock German intellectuals from old "Saturday Night Live" episodes, Nick Andrews made his own music video called "My Hands Are Bananas." It's become a minor YouTube sensation, watched by more than 300,000 people in the past week.
The deal, Google's most expensive acquisition, will be made with stock. Google is betting that such user-generated content will be the next big thing on the Internet. It's hardly alone, and its purchase may signal more deals ahead.
Yahoo Inc., another Internet titan, reportedly is in talks to buy Facebook.com, a social networking site, for $1 billion. It bought Flickr.com, a photo-sharing site, for an undisclosed amount last year.
While the YouTube price tag might sound high, some experts who follow the online video market believe Google might be getting a deal akin to the $650 million Fox Interactive paid last year for social networking pioneer MySpace.com. Today, MySpace could be worth anywhere between $5 billion and $15 billion, analysts speculate.
Internet companies are banking on a seismic shift on how Web content is created and viewed. Including blogs, podcasts and, of course, video, user-generated content has become ubiquitous across the Internet.
Now Google faces the challenge of figuring out how to make money off such content.
"I expect it will be a great channel for advertising," Sergey Brin, Google's co-founder, said during a conference call Monday. Google said it could insert ads inside the videos as well as serve up text-based ads based on a more robust video search function on YouTube.
One problem Google and YouTube hope to resolve is the lingering issue of copyright infringement. Users often post material they don't own.
Hours before Monday's deal was announced, YouTube said it reached agreements with CBS, Universal Music Group and Sony BMG Music Entertainment for the rights to certain content.
With YouTube under its wing, the acquisition provides Google with a huge increase in video traffic, said Gian Fulgoni, the Chicago-based chairman for ComScore Networks. Google's own video efforts have been relatively weak compared with other sites.
"Google Video is actually not that big, so if you look at market share on the basis of video streams, Google only has about 1 percent of the market," Fulgoni said. "YouTube has 9 percent. This deal increases the number of streams they can put ads on ninefold.
"This is a deal about advertising. Ads translate into revenue. Google already has hundreds of thousands of advertisers, so the more places they can put ads, the more revenue they can generate."
Google, which started only a few years before the tech bust, has a market value of $13 billion. The search giant's shares rose $8.50 on Monday, closing at $429 on the Nasdaq stock market.
"I think Google and YouTube is a great combination," said Dave Friedman, president of the Central division for Avenue A/Razorfish, an interactive marketing firm in Chicago. "Google continues to look for opportunities to add content" for advertising.
Google will continue to operate its own video site, and executives said Monday that YouTube will operate independently to preserve its brand and community.
YouTube's Steve Chen, 28, and Chad Hurley, 29, who founded YouTube after a conversation about how cool it would be to upload homemade videos onto the Web, will stay on, along with about 65 employees, Google said. Chen graduated from the University of Illinois. YouTube had been housed above a pizza shop in San Mateo, Calif.
Dmitry Shapiro, chief executive for Veoh Networks, another video-sharing Web site, said online video is very much in its infancy. "If this were a marathon, we would be in the first half of the first mile," he said.
"Today, it's hard to tell the difference between a Web site done by a professional and one by a regular user," Shapiro said. "The same thing could happen in video."
The Nick Andrews video is a case in point. The 17-year-old aspiring film student has been making videos for two years and has uploaded about a dozen to YouTube, a site he loves because it allows him to showcase his art.
"My Hands Are Bananas" is by far the most popular of Andrews' videos, and the outpouring from the hundreds of thousands of fans around the world has surprised him.
"A friend of mine who is in the video goes to school at [the University of Pennsylvania] and he's already been recognized on campus," he said. "The response has been great. I've been getting comments from people in Austria, Australia, the UK and Germany."
But he's not sure if the German viewers are fans of the video, since it mocks German techno music. "Most of their comments are in German, and I don't speak German, so I just respond with 'Danke,'" said Andrews, who recently visited film schools in California with his dad.
"Life can only be understood backwards, but it must be lived forward.-Soren Kierkegaard"
amazing how a website is worth so much
dont they spend millions in bandwith a month?
plus all the pending copyright lawsuits with Youtube.com not sure if that was a good buy.. time will tell.
Originally Posted by BigBadBuick
Exactly what I was going to say.
myspace.com/thejoannshow
Millions? How could you possibly spend millions of dollars on bandwidth, maybe it's just me, but that seems ridiculous? Am I just not up to date on this?
Its not like google isnt use to copyright issues anyways.
Ever go to chillingeffects.org and look at how many DMCA CAD orders google gets?
lol.. no. WTF?
http://blog.forret.com/2006/05/youtu...bytes-per-day/
"Meanwhile the site’s bandwidth costs, which increase every time a visitor clicks on a video, may be approaching $1 million a month–much of which goes to provider limelight"
no shit.
ya its pretty crazy huh?so with a million dollar tab every month and a serious serious copyright lawsuits.. I dont know if i would of paid 1.6 billion.
Yea, but there sure are companies out there willing to pay 10 million a month just to put a small advetisement up, or for info on which sites you visited before and after leaving, personal info, mailing list, list goes on and on. May sound like alot of money up front, but i can almost guarantee they have something in the works before hand as far as making that money back within the first 5 years.ya its pretty crazy huh?
My Google stock just rose a tad
Did you not read the article? I believe it says something about YouTube working out something with fox, sony and some others. Jesus fucking christ. It took me 2 minutes to read the whole thing.ya its pretty crazy huh?
Damn straight.
they should buy pornotube too
"Making the decision to have a child is momentous.
It is to decide forever to have your heart go walking around outside your body"
--Elizabeth Stone
No way.....they have that????
http://pornotube.com
It's in my favorites
Google stock is fucking expensive.
We are not the same I am a martian.
name one company that spends 10 million a month to have their name on youtube.
just one.
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