By DAVID MOON, Moon Capital
October 22, 2006
A couple of weeks ago when Google announced that it was
paying $1.64 billion for YouTube, all sorts of issues came to mind.
(For you folks who don't trade funny
videos, YouTube is a free video sharing site that lets users upload, view and
share video clips. Think Napster for video. If I have to explain Napster, ask
your kids or grandkids.)
My first thought was about America
Online. When AOL announced its $280 billion merger with Time Warner in 2000, it
didn't pay cash for the media conglomerate. It paid in AOL shares, eventually
known as funny money. I've wondered about Google's valuation (with egg on my
face), but it will be interesting to see if the founders of YouTube would have
been better off accepting a much lower purchase price but receiving esoteric
currency like American greenbacks, instead of shares of Google stock for their
company. Time will tell.
Another concern is about the value
of the YouTube asset Google is purchasing ' and the potential accompanying
liability. Many of the videos folks post to the YouTube site are copyrighted or
include copyrighted material. When someone posts a video of your local weather
guy accidentally burping on-air, there's no question that's a copyrighted (and
pretty embarrassing) video clip. But if your daughter posts a clip of her
basketball team's victory over their arch rivals with 'We Are the Champions'
playing in the background, the music group Queen and Elektra Records have the
basis for a legal complaint. Every wedding reception video with a Brittany
Spears video playing in the background is a violation.
Some argue that the violators are
the individuals who post the copyrighted material, not the hosting companies,
thus protecting YouTube, and eventually Google, from liability. There is some
basis for this argument, but legal analysts are growing skeptical of this wall
of protection. YouTube has made some effort to prevent copyrighted material from
being posted on its site, which sounds like a good thing. But every time it
exercises editorial censorship, it admits some level of responsibility, thus
increasing its potential liability.
A recent ruling suggests that if
individuals are using a centralized service ' like Napster or YouTube ' to share
copyrighted material, the folks running that centralized service are inducing
violations, and thus culpable.
Until now, perhaps YouTube's best
defense against lawsuits was that it started by three guys in a garage less than
a year ago and didn't have a lot of assets for aggressive content owners and
their attorneys to go after. This all changes with the acquisition by Google.
YouTube's soon-to-be parent company has more than $3.8 billion in cash ' enough
to attract swarms of enterprising intellectual property right
Mark Cuban, co-founder of HDNet and
maverick owner of the NBA's Dallas Mavericks agrees. 'The only reason [YouTube]
hasn't been sued yet is because there is no one with big money to sue. They are
just breaking the law.' He added 'anyone who buys that [YouTube] is a
Cuban made his remarks at
Advertising Week in New York
City on September 28. A video of his presentation
has been removed from YouTube.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).