PVR Wire

Last year it was eBay and Skype. This year's big takeover that everyone is talking about is YouTube and Google. Expect to see a lot of discussion and predictions about what this $1.6 billion acquisition really means.

Google is paying YouTube in Google stock meaning that the owners could have a Google stock portfolio worth a lot more than $1.6 billion in a few years time. YouTube investors Sequoia are rumored to take $480 million of this stock portfolio.

Despite recent criticisms (see below), the overall feeling is that the acquisition is a good thing for both companies.

According to the Google press release the two companies will continue to work independently and maintain their own brands. "Following the acquisition, YouTube will operate independently to preserve its successful brand and passionate community."

Putting criticisms aside you need only look a the amount of users and growth of YouTube to see why Google bought them. 20 million regular users, the Top 10 site on the net, and 100 million video views a day.

Just look at the graph below from Alexa to see the phenomenal growth of YouTube. If you are not convinced then compare that growth to Google Video.
Google itself is already the 3rd busiest site on the internet, and now that it owns YouTube the company has control over a tremendous number of internet users, probably a higher percentage than anyone else!

Criticisms of YouTube

YouTube has previously received a lot of criticism. In summary the criticisms are:

1. Lack of a business model – the company has not proven to be profitable and has huge bandwidth costs.
2. Copyright issues – with so much copyrighted content appearing on the site it is considered just a matter of time before YouTube gets sued.
3. Censorship – it is questioned whether YouTube is responsible enough about what it allows, and more importantly doesn't allow, on its site. It has received accusations of double standards with regards to freedom of speech.
   

One of YouTube's biggest critics is billionaire Mark Cuban. Cuban became a billionaire when he sold broadcast.com (now LaunchCast) to Yahoo for over $4 billion. He believes YouTube will go the way of Napster because of copyright issues and its lack of a business model saying they would be "sued to oblivion".

He recently said only a moron would buy YouTube. Russel Hiemlich of DVGuru has already turned around and said "who's the idiot now Cuban?"

But let's not be too quick to judge, only time will tell whether this was a good decision for Google. All of Mark's Cubans previous points are still very valid.

However, given YouTube's problems if there was any company around that could best address them it would be Google.


What Google can do for YouTube

1. Lack of a Profitable Business Model

When Google first came to life it did not know how it was going to make money, but it turned around to create the most renowned contextual advertising system on the internet and integrated it into its search results and other websites. Now Google is a very profitable company and can afford to buy companies for $1.6 billion.

Google has the experience to make YouTube profitable without being too greedy and sacrificing the user experience. Monetization possibilities include:

a) Video adverts in YouTube videos:
I don't know if you noticed but Google has also started introducing video adverts into AdSense adverts using the same contextual system they use for the text based adverts.

Google could possibly integrate these adverts to be shown every now and then at the end of a YouTube video. Not in all videos but just in say 1 in 5 videos and also make sure the adverts match the theme of the video.

Google has a reputation for acting responsibly with adverts. They don't overwhelm the consumer. Just compare its search engine to MSN and Yahoo as an example. I'm sure Google could integrate ads into YouTube without sacrificing userbility.

Given that advertisers are becoming increasingly annoyed with ad skipping PVRs and are looking for other more effective ways to advertise, YouTube could become a popular platform for advertisers.

b) Selling premium video:
Google already sells premium video on video.google.com and it could attempt to do the same on YouTube or somehow integrate the premium Google Videos with YouTube.

c) Licensing content:
There is a possibility that Google and YouTube could license the content on YouTube to TV networks in a similar way to Blip.TV.

2. Copyright Issues

The company that bought YouTube had to be impartial to content producers. For example if Disney bought YouTube then every other content producer would be giving the company hassle in an attempt to knock out the competition.

Google fits the bill perfectly and provides a non-biased distribution system for large content producers which will somewhat help douse any fiery copyright concerns.

Google has had its fair share of legal battles and has a very strong legal team. Google has won and fended off a growing number of copyright cases. If anyone can fight a legal battle for YouTube it is Google.

Additionally both Google and YouTube have struck a series of deals with content owners Universal Music, Sony BMG and CBS which helps the copyright situation somewhat.

3. Censorship

Google has done well to organize the world's websites while maintaining fair censorship that doesn't forfeit freedom of speech (although I'm sure some won't agree with me on this one).

In fact Google has tended to stand up for freedom of speech. When MSN and Yahoo sucked up to China's censorship laws Google tried to fight it. Of course Google eventually gave into China, but at least they tried.

Google could effectively channel its vision and expertise on "managing" freedom of speech towards YouTube allowing YouTube to manage its video library more responsibly.


Threat of Video Search Engines

One thing that YouTube (and Google) should worry about is the growth of video search engines that index and search many video sharing sites at once. These sites won't necessarily steal traffic from sites like YouTube, since they will send traffic to them.

However, what these video search engines will do is open up the community away from YouTube and send people to all the different video sharing sites. This could eat into YouTube's market share if another site can host a lot of video (the more video the more hits from video search engines).

Also if a competing site has higher video quality, like the video sharing site Stage6, then those higher quality videos could end up with higher rankings than the YouTube videos.

This would happen because the video search engines will likely use "community voting" to assist rankings (similar to sites like digg) and higher quality videos would get more votes. This could therefore see YouTube begin to lose market share.

Google has shown no sign of becoming a proper "open" video search engine. Google only allows you to search videos that they host internally on Google Video.


Some Interesting Points and Questions

• Now Google has the massive Google Video library and an even bigger YouTube video library. I wonder if Google would cross publish all the content on Google video with all the content on YouTube. I personally don' think so as I don't see any point in it, do you?
  
• With such a huge video library and more video viewers than anyone, Google and YouTube could monopolize the video sharing market. Although there is some healthy competition around, there is still a potential threat of a monopoly. Do you think that there is a real monopoly threat from "GoogleTube"?
  

What this means to Personal Video Recording

This is a PVR site after all and the acquisition news will effect how we record and watch video. Google Video allows you to save higher quality versions to your PC so it would be interesting to see if YouTube now adopts the same strategy.

The acquisition is only going to give user generated video as a whole more publicity. If sites like YouTube are more popular we will likely see the ability to access them through our set top box PVRs.

We can already access it through media center PCs using the software TVedia or Windows MCE with an additional plugin. But it would be great to get it through a TiVo or another PVR set top box.

To Sum Up

It is going to be very interesting to see how this all pans out. Video on the internet is a whole new era and we have seen history in the making with this acquisition. If anyone can do something good with YouTube it will be Google.

Let's end with a YouTube video from the YouTube founders, Chad Hurley and Steve Chen, commenting on the acquisition:



For additional coverage on the Google-YouTube Deal check out the following:

• New York Times - A Slippery Slope of Censorship at YouTube
• Dave Zatz - Google Buys YouTube - Advertisers Rejoice
• Download Squad - Google's Youtube Acquisition is official
• TV Squad - It's official: Google is buying YouTube
• DV Guru - Google and YouTube: It's Official!
• Blogging Stocks - Can Google squeeze enough out of YouTube to recoup $1.65 billion investment?
• TechCrunch - Google Has Acquired YouTube
• BBC - Now on YouTube: Google's gamble
• Google Press Release
• PVR Wire - It's Official, Google Own YouTube
• Mark Cuban - I still think Google is going crazy
• Calacanis - Google to buy YouTube? Perfect match
• DVGuru - GooTube match made in heaven