Google buys YouTube.Com 1.65 Billion

Google buys YouTube.Com 1.65 Billion

October 11, 2006

Google, YouTube deal is a wrap
For $1.65 billion, Internet giant bets video is next big
thing.

By Eric Benderoff
Tribune staff reporter

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.

ebenderoff@tribune.com
Copyright © 2006, Chicago Tribune