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10/9/2006
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Reactions Run The Gamut On Google, YouTube Marriage

Some media and entertainment players say the deal boosts the value of the online video sector, while others warn Google that as much as 60% of YouTube's content infringes on copyrighted material.

Industry executives met Google Inc.'s marriage to YouTube Inc. with mixed reactions Monday after the internet search giant agreed to acquire privately held YouTube for $1.65 billion in stock.

It's been a wild ride for the startup founded in February 2005 in a Menlo Park, Calif., garage. YouTube announced its first round of funding the following November for $3.5 million from venture capital firm Sequoia Capital. In April 2006, the company received an additional $8 million in a second round of funding from Sequoia.

"The deal proves online video is a highly valued sector, and Google is confident it can monetize the enormous amount of traffic YouTube has today," said James Belcher, senior analyst eMarketer. "It's a nice switch from many deals done during the dot-com era, where the goal was to build traffic."

Today, Belcher said, the focus for companies turns to building traffic that can drive advertising dollars, which works well for entertainment industry executives trying to cope with a new supply chain that brings in multiple types of multimedia content like digital ringtones, music, and videos.

Thomas Hesse, president of Global Digital Business at Sony BMG Music Entertainment, declined to comment directly on the acquisition, but said the digital music group is pleased to have signed licensing deals with both Google and YouTube announced earlier Monday.

"The sites are a great way to connect our artists to their fans in a legitimate way, respecting copyrights," Hesse said. As Sony BMG expands its supply chain into different distribution models, "we'll continue pushing our content through this new platform."

In another take on the deal, outspoken Dallas Mavericks owner Mark Cuban, who also has a hand in high-definition (HD) broadcasting, entertainment and movie theaters, congratulated YouTube for getting Google to "say yes," but he plans to keep an eye on copyright and digital rights management issues.

"It will be interesting to see what happens next and what happens in the copyright world," according to Cuban's blog. "I still think Google's lawyers will be a busy, busy bunch. I don't think you can sue Google into oblivion, but as others have mentioned, if Google gets nailed one single time for copyright violation, there are going to be more shareholder lawsuits than Doans has pills to go with the pile on copyright suits that follow."

Video search engine Pixsy CEO Chase Norlin agrees with Cuban. "I think the deal is one of the silliest maneuvers I've ever seen Google make because the majority of content on YouTube is copyrighted, taken from other places and uploaded by users," he said. "I did a search on YouTube recently for Indigo Girls, the music group. There were six pages of bootleg material on the site."

Norlin, whose video search engine Pixsy serves up thumbnails of video content, said he's willing to wager copyright material on YouTube accounts for between 50 percent and 60 percent of material on the site

Capgemini head of strategy Jason Forbes said Google must find the right business model for the site to exist. "The acquisition represents a juncture in evolution for online video," he said. "If Google moves too quickly, YouTube will likely turn off customers because a large part of the attraction of the site is they're relatively unmonitored and unrestricted, much like Napster used to be."

Although YouTube would disagree, Forbes said a significant portion of the content on the site goes against copyright laws. "If you're not careful to make the transition, the site will die and you'll have alternatives crop up very quickly."

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