Google Picks up You Tube for $1.65bn
Having previously turned down MySpace, Google has paid more than three times the amount of money NewsCorp paid for that community to pick up the video sharing social network YouTube. Conceived in February 2005 by three ex PayPal employees and with only $11.5m in venture capital funding to date, the 67-employee company boasted over 100 million films watched per day, dwarfing the audience share of many major TV stations. YouTube was one of the last remaining independent massively-popular rich-media social networks; the merger brings around 57% of web video under the code of a single corporation, according to Hitwise.
The deal, announced late on Monday evening, came after a day of announcements from YouTube about new content deals signed with Sony BMG, Universal Music and CBS about the use of copyrighted content. The partnerships allow for YouTube to post music videos and allow users to deploy certain copyrighted songs in their work, but at the same time has the potential to prevent users from uploading mashups or films with a backing of commercial music from these labels through a new YouTube technology. Google also unveiled a content deal with Sony BMG and Warner Music leaving the UK's EMI the only music label not partnering with either website.
The all stock $1.65bn 'merger' is expected to be completed by the end of the year and will see YouTube existing as a separate branded operation with its own offices. A merry message from YouTube founders Chad and Steve follows:
Creative Commons analysis from PaidContent.org
GOOG-YouTube: Conference Call: No Name Change; Audio
from YouTube “world headquarters” as Google CEO Eric Schmidt dubbed it
at the start of the call, Schmidt, Google founders Sergey Brin and
Larry Page, YouTube founders Chad Hurley and Steve Chen. Theme of the
day: Steve and Chad are Google Guys 2.0. and Google’s expertise will
help them fulfill their promise.
– Schmidt immediately brandished the content deals announced this morning
by both companies — five total — “… which, in my view, highlight the
growing value that content owners place on the internet asa new channel
to distribute and promote their work. This acquisition is an exciting
exciting next step in terms of our thinking about the evolution of the
internet in video and it’s one of many investments that Google will be
making to make sure that video has its proper place … on the internet
– Schmidt, who now gets to mentor another garage band, on the YouTube
founders: “Chad and Steve remind me of Sergey and Larry when I first
came to Google and I say that with great affection.” He called them
“the perfect example of the people we like to work with” and said, “the
think that tipped us over was not the great business success of YouTube
or its good working relationships, but, in fact, how the vision of
serviing their end users was exactly the same as Larry and Sergey’s
vision in founding Google.”
– Why Google:
Hurley: “By joining forces with Google we’ll be able to sharpen our
focus on this vision to create a new media platform for consumers and
partners to distribute their media worldwide.”
– Why all stock:
David Drummond, general counsel, Google: The deal was structured this
way to make it tax-free for YouTube shareholders. It also made the deal
cheaper for Google. Schmidt added during that part of the discussion as
he looked arounf world HQ, that “the YouTube had not spent very much
money; they have been very. very thrifty.” (Don’t think he was
referri9ng to bandwidth, though.) No details on the financials as in
how the valuation was reached but Drummond said it was modeled on just
about every model you could imagine. He said he thought the price was
fair and a good value.
– Google Video stays: Asked
why Google would need YouTube when it has Google Video, Schmidt said
the company’s own video service is doing well, has good content
relationships and is being more integrated with the company but they
were drawn to YouTube’s social media aspects: “That’s what really drove
us to begin the conversation.” As for Google Video, he said, Google video doesn’t go away now or ever. It’s going to become even more integrated with Google overall.
– Merger or purchase:
Brin described the deal as a “merger.” Brin described YouTube as part
of “a new class of sites tjhat have really developed very quickly, are
very successful and are very attractive to users and are obviously
delivering a lot of value.”
– No name change: Schmidt: “No name change. We think the brand has value and we want to preserve that.”
– On copyright:
Hurley and Chen gave a brief description of the new content ID
technology; Chen said he hoped to begin using it next month. Hurley
said they’ve always respected rights. Drummond said both companies rely
on the safe harbor of the DMCA.
– On advertising: Hurley said YouTube would be exploring a lot of options, including using Google’s advanced ad technology.
– Other bidders:
As Hurley seemed to explain it, YouTube really wasn’t for sale until
they decided it should be. No real answer about why they couldn’t have
made a similarly independent deal with other companies.
– Schmidt: “This is the next step in the evolution of the internet. It
(video’s) a natural next step.” In a way, this reminded me of the New
York Times Company’s acquisition of About.com, which gave it much
needed SEO technology. Google wants YouTube to provide that extra edge in video to become as dominant globally in video as it is in search.
You can download the audio here (10.4 MB, 22:51 mins). Or you can stream it here … click on the arrow:
GOOG-YouTube: Numbers Tell Different Stories; VCs Win
of people chiming in about valuation and pricing where this deal is
concerned. As soon as the number $1.6 billion was floated by Mike Arrington
and picked up by others, it was clear if the deal went through Google
would be paying a significantly higher amount than I’d ever heard
seriously mentioned for YouTube. That’s because Google’s interests lie
beyond a traffic boost or even video sharing. It’s seeking nothing less
than world domination in video and that’s an expensive mission.
In return, YouTube gets to leave behind the endless drama of who will
own it and acquires an owner sympatico to its own ideas on copyright,
something a media company could not have been, and possibly on the
cutting edge of video advertising, something YouTube needs solved. Not
incidentally, its founders, investors and employees with options get
$1.65 billion in Google shares; the number of shares is tied to
Google’s share price in the days before the deal closes. After that,
their fortunes will be tied to Google. When the share price rises, so
will their paper worth. If the stock drops before they can sell, so
does their net worth.
– FIM paid $580 million for MySpace and its parent company and was
considered by many to have overpaid. FIM and Google made a $900 million
ad deal and suddenly that value looked more justified. Google may be
counting on that when it expects FIM to accept that it just acquired
its nearest competitor in delivering videos.
What are others saying:
VC Ratings: “Sequoia Capital, which has invested $11.5 million for about 30% of YouTube, is doing really, really well.
and may have finally usurped Kleiner Perkins Caufield & Byers as
the top venture capital firm. … This is the clearest admission yet by
Google that it’s maturing and it can’t build everything on the web
“From a pure deal perspective, Sequoia Capital (which also backed YHOO
and GOOG) adds another icon to the list of successful exits they have
had. Their 30% investment in YouTube for $11.5M has turned into $500M
in less than two years – a 43x multiple, or more if the GOOG stock gets
a pop over the next 30 days.”
PEWeek: SF hedge fund Artis Capital Management was a co-investor in the $8 million spring second round this spring, according to a reg filing. With the total at $11.5, that means Sequoia’s win may be a bit lower than estimated. Stephen Welles, a lawyer with Wilson Sonsini Goodrich & Rosati, also participated, PEWeek reports. No details on amounts.