October 31st, 2006
Behind the scenes: Google played hardball in YouTube deal
Mark Cuban has posted a fascinating (possibly not 100% accurate) glimpse into the behind-the-scenes deal-making between Google and YouTube. It was written by "an experienced veteran in the digital media business" who had at least some second-hand insider knowledge of the deal. Frankly when I read it reaffirmed just how ruthless business can be. The details are pretty shocking. Essentially it tells how Google ensured it was reasonably protected from impending copyright lawsuits against YouTube, from large media companies. Consider this passage for example:
Google needed a two pronged strategy which you see unfolding now.
The first request was a simple one and that was an agreement to look the other way for the next 6 months or so while copyright infringement continues to flourish. This standstill is cloaked in language about building tools to help manage the content and track royalties, some of which is true but also G knows that every day they can operate in the shadows of copyright law is another day that Youtube can grow. It should be noted that Google video is a capable Youtube competitor with the ONE big difference being a much more sincere effort to not post unauthorized works - and Google fully appreciates what a difference that makes. So you can continue to find movie clips, tv show segments and just about every music video on Youtube today.
The second request was to pile some lawsuits on competitors to slow them down and lock in Youtube's position. As Google looked at it they bought a 6 month exclusive on widespread video copyright infringement. Universal obliged and sued two capable Youtube clones Bolt and Grouper. This has several effects. First, it puts enormous pressure on all the other video sites to clamp down on the laissez-faire content posting that is prevalent. If Google is agreeing to remove unauthorized content they want the rest of the industry doing the same thing. Secondly it shuts off the flow of venture capital investments into video firms. Without capital these firms can't build the data centers and pay for the bandwidth required for these upside down businesses.
This folks is hardball and while I wouldn't label it 'evil' (as in Google's 'do no evil' policy), it certainly is a heavy foot being applied in sensitive places to its competition - Bolt and Grouper are specifically mentioned.
Of course the big media companies are also tainted with a fairly damning brush - as this behind-the-scenes shows that artists will not see a penny of the settlement payouts YouTube will make to the media companies, for using their content. Also as Nick Carr put it, the timing of these deals is in hindsight very suspicious:
"If you remember, a few hours before it was announced, there was a "separate" announcement of deals between YouTube and three of the largest music companies - Universal, Sony BMG, and Warner - in which, reportedly, the media groups took equity stakes in YouTube in exchange for some kind of assurance that they wouldn't sue the company for copyright infringement. The equity stakes turned into a (reportedly) nice pile of cash when, shortly thereafter, Google announced it would buy YouTube."
So this is how the big Internet and media companies do business. It should come as no surprise, but it kind of makes you think again about Google and YouTube…
