Google acquires YouTube for $1.65 billion

YouTube went live in December 2005. Today, Google announced it bought the company for $1.65 billion in stock.
The deal, assembled at top speed, will be a stock-for-stock transaction. Following the acquisition, YouTube will operate independently to preserve its successful brand and passionate community.
YouTube will continue to be based in San Bruno, Calif., and all its employees will remain with the company. Closely-held YouTube claims more than 100 million videos are viewed daily on its site, making it the No. 2 video site on the Internet behind MySpace.
Word of the pending deal first surfaced late last week and was promptly lambasted by that shrinking violet Mark Cuban, who called the idea “crazy.”
Google CEO Eric Schmidt told a conference call that “what tipped us over was not the great business success but the vision they had for delivering content to users. It was the same vision in serving their users as Larry and David had in founding Google.”
Google expects to monetize the YouTube content through ad placement, but the details are still being worked out. Schmidt emphasized that Google’s answer to YouTube, Google Video, wasn’t going anywhere.
“Google Video doesn’t go away, ever. Google Video is a valuable part of the Google experience and will become even more integrated with Google in the future,” he said.
The deal is expected to close in the fourth quarter. Google General Counsel David Drummond said the purchase was all-stock instead of the usual cash deal to make it a tax-free transaction.
Analyst reaction was cautious.
“I find myself agreeing with Mark Cuban, but for different reasons,” said Joseph Laszlo, research director with JupiterKagan. “While YouTube has a large audience, they don’t have anything in their technology that’s unique.
Laszlo added, “Google has never bought audiences in the past, so buying YouTube would be a big break for them acting not like a tech company but a media company.”
Google paid an incredibly high price for a property that has yet to generate any appreciable profit, said Rob Enderle, principal analyst with The Enderle Group.
“Google often does things that appear insane and then makes them look brilliant in hindsight. This acquisition certainly hits on the insane part of that formula.”
The day had already started out on an upbeat note for YouTube, having signed deals with CBS, Universal Music Group and Sony BMG Music Entertainment. Google just signed a similar deal of its own to distribute music videos from Warner Music Group.
This comes on top of YouTube’s recent deal with NBC, which is helping avert a problem with copyright concerns.
YouTube lets its users upload pretty much anything and often has to deal with the issue of content after the material has been online.
It helps that the movie and television studios aren’t being as reactionary as the record labels, even though the majority share the same corporate parents.
“The three deals today shows YouTube is trying very hard to prove to media companies that it can be an asset, a helpful thing to them,” Laszlo said.
While music labels sued Napster, LimeWire and Kazaa out of existence, “the folks on the video side maybe sees more opportunity,” Laszlo added.
CBS will have a CBS channel on YouTube’s site, offering news, sports, Showtime and prime-time programming, starting this month. Universal will give YouTube viewers access to thousands of music videos, as will Sony. Sony will also let some songs be used in amateur video uploads on YouTube.