Mark Cuban just posted an interesting take on the recent purchase of YouTube by Google by a media industry insider. Below are some excerpts from the post Some intimate details on the Google YouTube Deal, it is interesting reading and gives some insight on how business is conducted in Corporate America today.
> I'm an experienced veteran in the digital media business and thought
> I'd share my version of events that happened at Youtube. Some of this
> is based on talks with people involved and some is speculation based
> on my experience working in the industry, negotiating settlements and
> battling in court.
> In the months preceding the sale of YouTube the complaints from
> copyright owners began to mount at a ferocious pace. Small content
> owners and big were lodging official takedown notices only to see
> their works almost immediately reappear. These issues had to be
> disclosed to the suitors who were sniffing around like Google but
> Yahoo was deep in the process as well. (News Corp inquired but since
> Myspace knew they were a big source of Youtube's traffic they quickly
> choked on the 9 digit price tag.) While the search giants had serious
> interest, the suitors kept stumbling over the potential enormous
> copyright infringement claims that were mounting.
> So the parties (including venture capital
> firm Sequoia Capital) agreed to earmark a portion of the purchase
> price to pay for settlements and/or hire attorneys to fight claims.
> Nearly 500 million of the 1.65 billion purchase price is not being
> disbursed to shareholders but instead held in escrow.
> While this seemed good on paper Google attorneys were still
> uncomfortable with the enormous possible legal claims and speculated
> that maybe even 500 million may not be enough -
> Google wasn't worried about
> the small guys, but the big guys were a significant impediment to a
> sale. They could swing settlement numbers widely in one direction or
> another. So the decision was made to negotiate settlements with some
> of the largest music and film companies. If they could get to a good
> place with these companies they could get confidence from attorneys
> and the ever important "fairness opinion" from the bankers involved
> that this was a sane purchase.
> Armed with this kitty of money Youtube approached the media companies
> with an open checkbook to buy peace.
> The media companies had their typical challenges. Specifically, how to
> get money from Youtube without being required to give any to the
> talent (musicians and actors)?
> It was decided the media companies would receive an equity
> position as an investor in Youtube which Google would buy from them.
> This shelters all the up front monies from any royalty demands by
> allowing them to classify it as gains from an investment position.
> Since everyone was reaching into Google's wallet, the big G wants to
> make sure the Youtube purchase was a wise one.
> The media companies had 50 million reasons to want to help.
> Google needed a two pronged strategy which you see unfolding now.
> The first request was a simple one and that was an agreement to look
> the other way for the next 6 months or so while copyright infringement
> continues to flourish. This standstill is cloaked in language about
> building tools to help manage the content and track royalties,
> The second request was to pile some lawsuits on competitors to slow
> them down and lock in Youtube's position. As Google looked at it they
> bought a 6 month exclusive on widespread video copyright infringement.
> Universal obliged and sued two capable Youtube clones Bolt and
> Grouper. This has several effects. First, it puts enormous pressure on
> all the other video sites to clamp down on the laissez-faire content
> posting that is prevalent. If Google is agreeing to remove
> unauthorized content they want the rest of the industry doing the same
> thing. Secondly it shuts off the flow of venture capital investments
> into video firms. Without capital these firms can't build the data
> centers and pay for the bandwidth required for these upside down
This is very interesting reading and has a ring of truth to it. It definitely explains a lot that has happened with regards to the YouTube sale to Google for such a high price, the announcements of deals between YouTube and major copyright holders at the same time, as well as the fact that a number of video sharing sites got sued but not YouTube.
PS: This latest finaly convinced me to take the plunge and subscribe to Mark Cuban's blog. Great stuff.