- The Washington Times - Friday, October 6, 2006

SAN FRANCISCO (AP) — Internet search leader Google Inc. is in talks to acquire the popular online video site YouTube Inc. for about $1.6 billion in cash and stock, according to published reports.

Google and YouTube are still at a sensitive stage in the discussion, the Wall Street Journal and the New York Times reported on their Web sites yesterday, citing unnamed sources familiar with the negotiations.

The blog TechCrunch had reported on rumors of the acquisition talks. Google and YouTube officials declined comment.

Analysts said a Google acquisition of YouTube would make sense for both companies if the reported talks lead to a deal, especially considering Google’s $10 billion in cash on hand.

“It’s … cheap for a company that already has a global presence,” said Trip Chowdhry, an analyst with the San Francisco firm Global Equities Research. “YouTube’s brand identity is no less than Google’s and is no less than Coke’s.”

As YouTube’s popularity continues to soar, she said, Google can help make sure the site’s infrastructure keeps pace.

The acquisition would immediately propel Google to the top of the online video heap. YouTube eclipsed traffic on Google’s video site in February. By July, the number of monthly visitors had grown to about 30.5 million, compared with 9.3 million for Google Video and 5.3 million for Yahoo Inc.’s Yahoo Video, according to Nielsen/NetRatings.

YouTube users watch more that 100 million videos daily.

Google’s video service lets everyday users post clips, too, and unlike YouTube, Google gives them the choice of selling video. All YouTube clips are free.

Shares in Google rose $8.69, or 2.11 percent, to close at $420.50 yesterday on Nasdaq.

YouTube was founded in February 2005 by three former employees of EBay Inc.’s PayPal electronic-payment unit, and its chief financial backer is the Silicon Valley venture capital firm Sequoia Capital, which has invested $11.5 million. Sequoia was also an early Google investor.

The 25-employee YouTube is surging thanks to the increased availability of high-speed Internet connections and gadgets such as camera phones and digital cameras capable of taking video. Most of YouTube offerings are short amateur clips, although professional filmmakers, television networks and political campaigns have posted materials.

But many of the site’s videos contain copyright material, putting it at odds with big media companies such as Universal Music Group. YouTube immediately removes videos when copyright holders complain, but analysts said the company is still in a precarious legal position.

“Google would be taking on all that liability,” Forrester Research analyst Josh Bernoff said.

But Google also could present a solution, Mr. Bernoff said, noting that the software innovator could develop automated systems to block attempts to post copyright materials. He also said Google’s size and clout gives the company much more leverage than YouTube to negotiate deals with copyright holders.

When rumors circulated earlier this year that some major media companies were interested in buying YouTube, the company’s chief executive, Chad Hurley, said the company was not for sale and a future initial public offering was possible.

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