After Google agreed last week to purchase YouTube for a staggering $1.6 billion, many industry observers were shaking their heads and asking why.
Yet, this file-sharing Web site created by three young entrepreneurs is drawing some 100 million viewers each day to watch user-provided short videos. However, it has yet to make a profit, and may soon become a lawsuit magnet for its illicit use of copyrighted content.
Though it might be a high-risk acquisition, YouTube captured the imagination of some of the biggest media companies in the world. In fact, some analysts suggested the price Google paid might have been based more on keeping the company out of the hands of the likes of Yahoo, Viacom and News Corp. than anything else.
Mark Cuban, who experienced a similar Internet lottery win when he became a billionaire after selling Broadcast.com to Yahoo, had warned only a “moron” would buy YouTube because of its unresolved copyright issues.
In the meantime, YouTube is busy making deals with entertainment companies in hopes of reducing the risk of such lawsuits. It has recently announced deals to license content from two of four major music conglomerates — Universal Music Group and Sony BMG Music Entertainment — and the CBS television network in exchange for a percentage of YouTube’s advertising revenue.
YouTube is also expected to deploy a new technology to identify copyrighted material that users have uploaded to the site without permission, and to share ad revenue with media companies that own the video or music content.