Jay Parkhill November 1st, 2006
Mark Cuban posts an interesting read on his blog about the multiparty negotiations required to pull off the merger. The full description is worth a read, but the essential points are here:
*Youtube had rapidly mounting copyright complaints from content owners large and small. Revenue-share offers to the major studios didn’t go far because Youtube can’t track revenue/clip very easily (to the extent it gets any).
*Once Google came on board the lanscape changed. The piece claims that Google set aside $500M of the purchase price as an escrow to deal with copyright infringement claims.
*Youtube/Google also negotiated agreements with the major studios, as has been previously described. From what I understand, the studios got shares of Google stock, so presumably the escrow funds are still intact.
*The piece also says that Youtube got a 6 month “standstill” on any claims- i.e. they have 6 months to put copyright-policing measures into place before the studios start complaining again.
*At the same time, with Youtube at least nominally “friendly” to the studios, attention turned to the other video sharing sites. Hence the actions filed shortly post-closing against Grouper and Bolt.
Cuban did a great job calling this strategy long before it emerged. He predicted the studios would target some “shallower pocket” sites in order to set precedent before going after Google/Youtube (ok, so Grouper is owned by Sony, a pretty deep pocket itself. IMO Cuban still gets full credit for calling the play, even if the details werent’ spot-on).
Given the relationship between Google and the studios now, it might not be necesary to go after them at all. The lawsuits could have the effect of putting competitive video sites out of business and cementing Youtube as the home for online video for some time to come- and the only major player the studios need to deal with.
Assuming this is all true, it is a masterful piece of work by the Google & Youtube teams. Getting the studios on board seems like the only way to justify the $1.65B price.
There is definitely a lot of risk still in the strategy, though. One reason Youtube got so big is the availability of copyrighted material. If the spigot is turned off, it seems to me that consumers will find another source. Studios could be stuck playing the same whack-a-mole game with video sites that they do with peer-to-peer music sites: as soon as one gets knoecked down another pops up.
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