Google to buy video site YouTube

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« on: October 09, 2006, 07:51:56 PM »

SAN FRANCISCO (Reuters) - Web search leader Google Inc. said on Monday it agreed to acquire top video entertainment site YouTube Inc. for $1.65 billion (800 million pounds) in stock, the highest price yet paid for a consumer-generated media site.

The first deal to value one of the new generation of user-participation Web sites at more than $1 billion combines two of the most popular Internet brands: Google, synonymous with Web search and rapid innovation, and YouTube, a Silicon Valley upstart that has spearheaded the video-sharing craze.

In anticipation of the acquisition, investors pushed shares of Google up $8.50, or 2 percent, on Nasdaq on Monday to a closing price of $429.00 -- a level not seen since late April. In extended hours trade, Google climbed to $431.55.

The stock had already gained about 2 percent on Friday when reports emerged that a deal might be in the works. In two trading days, Google has added around $6 billion in market capitalisation, or more than three times what the company has agreed to pay for YouTube.

The deal, expected to close this quarter, was structured as an all-stock transaction to make it tax-free for YouTube shareholders and cheaper for Google than paying cash, company officials said.

For Google, the acquisition of YouTube would thrust the Web search leader quickly into the emerging market for video advertising, where it has only a tiny foothold compared with Yahoo Inc. and various Web start-ups, analysts said.

"YouTube is phenomenally valuable in terms of traffic and in the Internet sector this is important just like location is important in real estate," said Sasa Zorovic, an analyst at Oppenheimer.

"YouTube has almost 50 percent of the online video market and combined with Google Video, they'll have close to 60 percent of traffic," Zorovic said, adding the $1.65 billion price tag was in line with valuations for Internet businesses.

YouTube was founded in February 2005 as one of dozens of Internet video start-ups. It has exploded in popularity since last November by letting users share short clips of home videos and programming copied from television.

Google, with nearly 8,000 employees in June, is based in Mountain View, California in the heart of Silicon Valley. YouTube, a company with around 60 employees, moved into new offices in San Bruno, just south of San Francisco. Google officials said YouTube would remain an independent company.

"This really reminds me of Google just a few short years ago," Google co-founder and president Sergey Brin said of YouTube in a conference call with investors and reporters shortly after the deal was announced.

But YouTube has been the target of criticism in the media industry for allowing pirated video clips to be uploaded and viewed on its service, with some arguing that it is a video equivalent of the original Napster music file-sharing service.

Josh Bernoff, vice president of Forrester Research, two weeks ago published a blog post that said "YouTube is goin' down" over copyright issues. After the deal was announced on Monday he told Reuters, "I still need to hear how the copyright situation (can) be solved. In the absence of a solution to that, Google has just opened itself up to a huge lawsuit."

He added, "This is pretty risky unless they have a solution to that problem."

Earlier on Monday, Universal Music Group and Sony BMG said they had signed distribution deals with YouTube, following a similar agreement with Warner Music Group last month. Google also said on Monday that it has signed similar deals with Warner and Sony BMG.

YouTube was the subject of acquisition speculation for most of 2006. Potential buyers included rivals of Google such as Yahoo, as well as media companies like News Corp., owner of MySpace.com, and MTV owner Viacom Inc.

Microsoft spokeswoman Whitney Burke said her company opted to build its own version of YouTube, which it calls Soapbox. "Microsoft evaluated acquiring this type of technology several months ago, and decided to build our own offering," she said.

YouTube says it serves about 100 million videos daily and has drawn scrutiny from major media companies for copyrighted material appearing on its pages without their consent.

It attracted 72 million visitors worldwide in August, according to Web audience measurement firm comScore Networks, up from 27 million users in April and 2.8 million a year ago.

I guess this means YouTube will be a lot better to use


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