Just hours before Google announced a US$1.6 billion acquisition of YouTube on Monday, both companies separately revealed agreements with major music labels for offering music videos on their respective sites. The deals, especially those between YouTube and the record companies, take on new significance since the acquisition, says one leading industry analyst.
That's because without Google, YouTube would have likely faced a potentially impossible task in negotiating similar deals with all of the major content producers, said Josh Bernoff, an analyst with Forrester Research.
Google and YouTube both must work with content producers to either prevent copyright content from appearing on their video Web sites or to pay for the right to host the content, said Bernoff. Without such deals in place, the content companies are likely to sue the Web site operators for copyright infringement, much like they've done with most of the early digital music sites.
"Let's assume for the sake of argument that 80 of the top 100 content companies make deals with YouTube. The remaining 20 are sufficient to cause YouTube to go out of existence," Bernoff said. Even a single company like The Walt Disney, for example, might have been enough to put YouTube out of business through costly litigation.
However, under Google, YouTube has a better chance of avoiding such potentially crippling lawsuits. "The difference now is that Google brings both incredible technical resources and deal-making resources to this negotiation," Bernoff said.
On the technical side, the content producers are likely to trust Google's ability to create and deploy a sturdy filtering system that could remove unauthorized content from the sites. YouTube has been working on such a solution, but it's a smaller company and the technology still needs to be proven, he noted.
In addition, Google's wide range of offerings puts it in a strong negotiating position with content producers. "If you think of all the different assets that Google brings to a negotiation like that, it's a whole lot easier for Google to come to a solution with Disney then a YouTube," he said.
The record company deals include separate YouTube announcements with Sony BMG Music Entertainment and Universal Music group to show music videos from the labels on YouTube. Google also announced on Monday similar deals with Sony BMG and Warner Music Group. All the agreements include the potential for YouTube and Google Video customers to license content from the relevant music companies to include in their own video creations.
Google said it expects the acquisition of YouTube will improve the user experience on the video sharing site and help advertisers by allowing more video ads on the site. The companies stressed that YouTube will operate independently within Google in an attempt to preserve the site's spirit and brand.