Viacom Stiffs Google, Gootube, and Yahoo! comes out on top

I read a very interesting post on Mark Cuban's blog back in late October entitled "Some intimate details on the Google YouTube Deal" where some insider comments were posted with respect to backroom deals that went on during Google's acquisition of YouTube.

The basic jest was that Google may have paid copyright holders equity in the YouTube deal so they would drop current all current legal suits, they setup a backroom fund (rumored to be around 1/2 the sale price of YouTube) to combat future copyright cases, and purchased a certain window (Q3, Q4 2006) in which the major copyright holders promised not to send take down notices or bring legal suits against YouTube while Google took the reins. At the time, several industry experts made sense of the Google YouTube deal as a means of Google purchasing the rights to control and monetize the advertising on YouTube (in some cool new video ad format including Adsense).

Well, it looks like that may just be coming back to bite them in the rear end.

Since that Q3, Q4 grace window ended in January 2007, YouTube has been in the news constantly for being served with take down notices (NBC, Viacom etc.) and it looks as though it is starting to harm Googles core business as Viacom (CBS network, MTV, Infinity broadcasting, Simon & Schuster, Blockbuster and Paramount Pict) has decided to partner with Yahoo over Google for search advertising on 33 of it’s websites.

This may also be a Viacom’s response to the search giant’s plans to enter some of the more traditional advertising spaces such as Radio and Television. This move has irked many of the big broadcasters who typically control advertising within their broadcasts. Such advertising ultimately allows TV or Radio shows to be aired or be cancelled (if the ads can’t pay the show’s contract the show is cancelled) and could significantly affect the quality of television should Google get into the mix and command a portion of each networks ad revenue (pay less for advertising on major networks)

Obviously, for a company like Viacom this represents a huge threat and no doubt is another reason why they would enter into an advertising deal with Yahoo!’s Panama platform. Terry Semel the head of Yahoo! responded, “Aligning Viacom’s popular brands, leading content and large audience with Yahoo!’s more targeted, relevant advertising, marks the beginning of a powerful and engaging partnership between our two companies.”

The increasing popularity of YouTube has enlightened experts to an industry trend of popular versus non-popular media on the site. In fact, at the height of YouTube – in its Q3, Q4 window of freedom - only 3 of the top 20 most popular videos on the site were user generated content. “Whats interesting is that Gootube has gone corporate. Its primary application is to host commercials. Commercials for TV shows. Commercials for Products. Commercials for cheesy websites. Gootube may host a bunch of user generated content, but thats not what people look at.“ - Mark Cuban. However according to a recent study, we’ve seen a steady increase in user generated content in the most popular feeds (if this is because there is less illegal video and hence user generated content is receiving higher popularity ratings is unknown - but the methodology of this study is being questioned).

Either way, if YouTube, the internet media giant, continues to hide behind the DMCA we will certainly continue to see more traditional media outfits (or their holding companies) rally against Google’s best interests. Especially if they believe YouTube is improperly profiting off the unlicensed content. One of the easiest ways these companies could seriously impact Google’s success in the traditional advertising space is simply by adopting Panama (Yahoo’s), Microsoft’s (Adcenter), or a Home Brewed platform to control advertising on their web sites (anything other than Google Adsense). I'd argue by adopting Panama they will further the success of Google's direct competition which is probably more in their best interests than going at it on a home brewed individual level even at the cost of higher profits (protect the industry & keep online - online). Google is known to be a one trick pony, they do search well, and their advertising platform keeps them a float. If their ad revenue stagnates whatsoever, investors will see this as a very bad sign and the stock will probably take a big hit and affect what new markets they may enter.

Currently only 5% of advertising dollars are spent online – this figure is expected to rise to 45% - 50% in the next decade so regardless these firms will continue to make money hand over fist.

I don’t know what type of creative measures companies like News Corporation, Time Warner, or Rogers Communications in Canada could do to prevent a hostile takeover of their advertising revenues. But I’m sure it could get really nasty akin to the Microsoft suits of the ninety’s. Today CBS said that it has launched the CBS Interactive Audience Network, which will distribute advertising-supported shows across Web properties including Time Warner Inc.'s AOL, Microsoft's MSN, CNet Networks Inc., and Joost as reported by WSJ but also includes deals with Cnet, Comcast’s Comcast.net and Fancast.com, Bebo, Brightcove.com, NetVibes, Sling Media and Veoh. The deals vary but include clips, full-length programs, remixes, library content, current shows. No doubt, CBS will expect to at least share the advertising revenue with these sites, and even possibly dictate the % depending on how successful this is. Obviously, CBS will also not be too quick to embrace the Google Adsense platform, saying they will use whatever unique ad platforms are required (EX// Joost is an IP TV company so they will probably run standard TV ads - possibly this will be the case accross their entire network).

Other Notes:

Since the Panama Ad Platform rollout in February Yahoo’s share price has increased from the $27-$28 mark to $31-$32 dollar mark nearly an 18% increase. Keeping in mind Yahoo’s stock is extremely sensitive to industry news – and that I’ve picked extreme highs and lows to prove my point (the Viacom deal happened yesterday) – over the same period, Google has seen its’ stock fall around 8 percent from the $490-$500 mark to the $460 mark (with extreme lows of the high $430’s).

YouTube, by far the most succesful video sharing site on the net, has emmerged into a sort of mobile video channel, where cell phone users, who may not necessarily have data plans, have an unlimited connection to YouTube and can view unlimited videos at no additional cost on their phone. The fact YouTube has been able to get to this point is pretty amazing and could seriously undermine any efforts from the big media firms in gaining traction in this market. Further it may eventually force the big media firms to license certain types of content to YouTube in a relationship where YouTube is the price setter.

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