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Will Google Make its Money Back?
October 10, 2006
Thomas Mennecke
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A couple of weeks ago, Mavericks owner Mark Cuban said that only a 'moron' would purchase YouTube. Google's leadership has proven to be anything but, as the company has grown to become a multi-billion dollar Internet landmark. Not a bad gig for its very young founders, Larry Page and Sergey Brin.

The reason Mark Cuban labeled the purchase in such harsh terms has largely to do with the potential legal liability that permeates YouTube. Although much of YouTube's content is mind-numbing antics performed by teenagers with considerable time at their disposal, an extensive portion is copyrighted material. YouTube recently found itself in marginal trouble with NBC Studios for hosting the Saturday Night Live skit 'The Chronic of Narnia.'

But that trouble passed when NBC simply asked YouTube to remove the infringing material. The video downloading website complied, and within days the event was a mere memory. However any YouTube aficionado knows the extent of copyright material, if we consider every instance regardless of length, is comparable to many online communities accused of copyright infringement. Content holders with an axe to grind may be itching for the opportunity to strike at Google.

In Mark Cuban's blog, he points out the potential legal problems stems from a technicality on YouTubes part – the site isn't truly a streaming site. Rather, it's a 'progressive downloading' website. With enough marginal computer skills, any YouTube fan can easily download scores of TV show clips and distribute them as he or she wishes.

“Its obvious what Youtube is trying to do. They are trying to push the obligation of licensing rights out on the rights holders by hiding behind the Safe Harbor rules of the DMCA. Make the rights holders find the copyrighted materials out of 60k uploads a day rather than make Youtube find the copyright owners of the materials uploaded. “

“As I have said many times, that shit aint gonna fly. I don't think so, and neither does a long, long list of copyright owners. We aren't just talking big media companies. We are talking fake a lawsuit companies.”

Mr. Cuban is quite confident that Google's YouTube venture is heading for deep trouble. Yet that hasn't happened, and the speculation that it might happen just because Google has poured 1.65 billion into YouTube remains just speculation. Perhaps YouTube has avoided the wrath shared by commercial P2P operators considering the site is not currently a money making enterprise. But Google plans to change all that.

YouTube will likely have the same look and feel once Google takes over. Their corporate offices will remain in San Bruno, California, and no one will be laid off. However Google will begin incorporating advertisements into YouTube – the typical non-intrusive ads that Google has been known for.

“With Google's technology, advertiser relationships and global reach, YouTube will continue to build on its success as one of the world's most popular services for video entertainment.” Google stated in a press release.

How much does Google's video aspect grow? According to comScore, it's quite substantial, yet not quite the blockbuster some are making it out to be.

“While one research company has touted market share of visits to a few online video sites as a key metric with which to evaluate the transaction (reporting that YouTube has a 40 percent market share), comScore considers this to be misleading, especially when evaluating the impact of Google's acquisition. Analyzing the transaction using share of visits suggests that all visits to video sites are equally valuable - but how can that be true? For example, one visit might result in only one video stream being viewed, while another visit can result in 20 video streams being viewed. With the potential to insert an ad in every stream, clearly all visits are not of equal value when considering the advertising potential of any site that offers streaming video. The problem is compounded if market share is measured only within a few select sites and not across the entire Web.”

Self-glorifying intentions aside, comScore brings up an interesting point. In other words, it may be true that YouTube draws in a significant amount of traffic, but what good is that traffic if a small proportion actually downloads videos? According to comScore, the following chart represents the breakdown of the top video website market share:

A = Unique U.S. Streamers
B = Streams Initiated by U.S. Users
C = Share of Total Internet Streams
D = Streams per Streamer.

Total Internet106,5347,182100%67.4
Yahoo! Sites37,93481211%21.4
Time Warner Network25,6752584%10.1
Microsoft Sites16,2271562%9.6
Viacom Digital14,0773224%22.9
Google Sites7,520601%7.9
Ebaums World7,143671%9.4
MLB6,44230< 1%4.6
ROO Group Inc.5,8411863%31.9

As we see from the chart, YouTube is the #3 site in terms of traffic. However the share of those who download is actually smaller than Yahoo! and MySpace. The incorporation of Google however will, by comScore's calculation, increase Google's presence by 'ten fold.'

Google isn't run by morons, and the risk of potential lawsuits had no doubt been calculated and recalculated immeasurably. Google's biggest risk may not be potential lawsuits, but whether their advertising campaign will be successful.

This story is filed in these Slyck News categories
Technology News :: Organizations/Initiatives

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