- The Washington Times - Monday, October 9, 2006

Internet search behemoth Google Inc. said yesterday it would buy online video leader YouTube Inc. for $1.65 billion, vaulting the Mountain View, Calif., company to the forefront of the online video craze.

The much-anticipated deal, announced after the markets closed, confirmed press reports last week that Google, jockeying for a bigger slice of the online video business, was set on buying the 19-month-old YouTube.

“This is the next step in the evolution of the Internet,” Eric Schmidt, chief executive officer of Google, told analysts and reporters on a conference call yesterday.

Mr. Schmidt and YouTube executives touted the potential of Google’s search technology and advertising model combined with the loyal online community of YouTube, which receives 100 million video views per day.

“Right now, we’re in the middle of a shift in digital media entertainment,” said Chad Hurley, chief executive officer and co-founder of YouTube. “Users are now in control of what they watch and when they want to watch it. They decide what rises to the top. By joining forces with Google, we’ll be able to sharpen our focus on that vision.”

Both companies have received corporate approvals for the deal, which they expect to close in the fourth quarter. Under the transaction, YouTube will retain its brand and continue to operate independently, officials said on the call.

In terms of market share, YouTube is the clear leader over Google’s competing service: Last month, the video service posted a share of visits four times greater than Google Video, according to Hitwise, a New York Internet market research firm. YouTube ranked first in online video services with a share of 45.97 percent, ahead of MySpace Videos at 21.17 percent. Google Video came in third at 11.01 percent.

“This is an extremely volatile space when you consider the fact that YouTube didn’t even exist a year ago in terms of having a launched service,” said Bill Tancer, general manager of global research at Hitwise.

Mr. Schmidt stressed that Google Video will continue to exist, noting that it will become “even more integrated with Google overall.”

Mr. Hurley, who in previous reports had said YouTube was not for sale, said the Google deal was the right fit.

“Those comments were made because we wanted to remain independent and continue on our mission to build great products for users,” he said. “By working with Google, that’s still the case.”

YouTube, which just 20 months ago was running on credit-card debt, will keep its headquarters in San Bruno, Calif. All 67 employees will remain with the company.

Executives said it is too early to tell how the integration will take place and how user experiences might change.

“There’s no shortage of projects in the weeks ahead,” said Steve Chen, co-founder of YouTube.

Both companies stressed their dedication to protecting copyrights in response to analysts’ concerns over potential lawsuits that could result as users incorporate copyrighted content into their creations.

By next month, YouTube plans to roll out new audio fingerprinting and search mechanisms to identify and protect copyrighted content, Mr. Chen said.

Dmitry Shapiro, chief executive officer and founder of Veoh Networks Inc. in La Jolla, Calif., said the Google-YouTube deal paves the way for thousands of similar peer-to-peer video-sharing sites.

YouTube “is much more than another Web site that shares video; what we’re all trying to do is reinvent television broadcasting,” said Mr. Shapiro, calling his company, which focuses on delivering longer, TV-grade content to viewers, “the next thing after YouTube.”

“I think that traditional media companies very much understand that the world is changing right in front of their eyes and that they need to jump in and make some decisions and play or be disenfranchised.”

The acquisition comes on the heels of announcements yesterday morning that both Google and YouTube are teaming up with major music labels to distribute music videos online and share in the advertising revenue.

Google inked deals with Warner Music Group Corp. and Sony BMG Music Entertainment, while YouTube teamed up with Universal Music Group, as well as Sony BMG.

YouTube also announced a partnership with CBS Corp. to air clips from popular shows such as “Survivor,” “CSI” and “Late Show With David Letterman.”

The companies described the new media partnerships as mutually beneficial to content producers, who can compensate artists and better enforce copyright protections, and video service providers, who can use the additional content to attract more viewers.

Users will be able to access streaming content and incorporate it into their own videos. In addition, Google Video will make Warner Music Group’s content available for purchase at $1.99 per download.

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