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10/9/2006
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Google To Acquire YouTube For $1.65 Billion In Stock

After several days of rumors, the companies went public with the deal today. YouTube will keep its employees and operate independently.

Google Inc. on Monday said it has agreed to acquire video site YouTube Inc. for $1.65 billion in stock, a move that greatly expands the search engine giant's advertising reach in online video.

The acquisition would combine the largest company in online search with one of the largest sites for video sharing. The deal was announced the same day both companies unveiled separate content deals with major record companies.

In a joint teleconference, YouTube co-founder Chad Hurley said the acquisition would give the startup, founded in February 2005, the money and engineering resources needed to add services and accelerate its growth. In July, YouTube was the third most popular site for streaming or downloading video, followed by No. 1 Yahoo and social-network MySpace.com, according to ComScore Networks.

Eric Schmidt, chief executive for Google, said YouTube was the "clear winner on the social-networking side of video."

"That's what really drove us to pursue this transaction," Schmidt said.

Online social networks, such as News Corp.'s MySpace, are the fastest growing properties on the Web. YouTube combines a social network with video by enabling registered users to upload and share clips, join and create groups of people with similar interests, and subscribe to members' videos.

In negotiating the deal, Google engineers found a couple of dozen ways Google technologies could assist YouTube, such as in applying advertising to YouTube traffic and improving video search, Schmidt said.

"We don't lack from a set of ideas," he said. "Most people believe that this is just the beginning of an Internet video revolution. And there will be many ways in which that video gets uploaded, monetized, and copyrights respected, which another key component of the YouTube vision."

Content providers and some analysts have criticized YouTube for offering videos uploaded by users that include copyrighted material. The company has been signing ad-revenue-sharing deals with record companies and TV networks to address the problem. On Monday, the company announced deals with CBS Corp., Sony BMG Music Entertainment and the Universal Music Group. Google also announced its own separate deals with BMG and Warner Music Group Corp.

YouTube plans to launch by the end of the year technology that would enable copyright holders to search and find unauthorized content and remove it from the site, or leave it up and share ad revenue with YouTube. It's not clear, however, whether YouTube plans to remove illegal content on its own, or leave it up to copyright holders to notify them first.

Despite the acquisition, Google planned to continue with its own service for uploading and sharing video. "Google Video is a valuable part of the Google experience and is not going away," Schmidt said.

Under the deal, YouTube would operate independently and its headquarters would remain in San Bruno, Calif. All of its employees would remain with the company.

The number of Google shares to be issued in the transaction would be determined on the 30-day average closing price two trading days prior to the completion of the acquisition. The transaction is expected to close before the end of the year.

YouTube claims to serve up 100 million videos per day, with more than 65,000 being uploaded daily.

Worldwide traffic to YouTube grew nearly 2,500 percent from August 2005 to August 2006 to 72 million visitors, according to ComScore Networks. In August of this year, Google ranked as the third most visited Internet property with more than 468 million visitors. YouTube ranked 14th. Combined, the two companies would have a worldwide reach of 477 million visitors.

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