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YouTube-Google deal full of issues | ||
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By DAVID MOON, Moon Capital
Management 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 lawyers.
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 moron.'
Cuban made his remarks at
Advertising Week in David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).
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