: For $1.65 Billion Google Could Have Bought Any Number of Traditional Media Properties Producing Good 20% Plus Margins, But Instead It Buys An Internet Start-Up That Doesn’t Even Have An Established Revenue Stream. Kinda Makes One Wonder Why?

YouTube, where more than 100 million videos are viewed daily, has been around for about 18 months and has around 50 million users worldwide. Newspapers,on the other hand, have been around for centuries and you’d have to take several and their web sites and add them together to get around 50 million users.

YouTube has 67 employees in its San Mateo, California, headquarters located above a pizza shop. Compare that to the new Hearst Building that just opened on Times Square and the new New York Times complex that is to be occupied next year. How many employees in each?

YouTube relies entirely upon its users to provide product. Those users range from you and I to Hollywood studios and music labels. No money changes hands. Traditional media relies on countless employees to produce and distribute the product. About 65,000 new videos are added daily to YouTube. How many new items are there in a normal day’s newspaper or on television or on a traditional media site?

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YouTube doesn’t charge for its product, relying on the advertising model, something that television can match, but newspapers? Well, that is the new trend, isn’t it!

And just like traditional media when a major news event happens the YouTube traffic can soar. Take the World Cup final when French captain Zinedine Zidane head-butted Italian defender Marco Materazzi and got a red card. According to Nielesen/NetRatings, YouTube’s July usage shot up 75% on that one clip alone.

The ftm 28-year-old media sleuth in Orlando gives two examples of why the site is so popular, especially with the young. If you want to catch a replay of the concerts by U2 and Green Day at the Superdome reopening September 25, (he assures the writer these are big deals!) then about the only place you’re going to find them are on YouTube. And as this is written in Geneva the writer is watching a very good video quality with great sound as Green Day struts its stuff. Access was very quick, although our sleuth did point out that if you don’t know exactly where to go then finding what you want can be very difficult – that sounds like a search tie-in for Google if ever there was one.

He also gave the example that a friend died last week in a car accident. His buddies put together a video memorial to him, titles and all.

Hollywood studios and music labels, and even television news channels had been threatening lawsuits against YouTube (no doubt that Superdome concert is not there legally) claiming copyright infringement for their material posted on the site, but now they are turning to revenue share deals. Hollywood is well aware that the average YouTube user is spending 28 minutes a month on the site – that’s 28 minutes they are not watching a TV show or watching a DVD. And now Hollywood is promoting its products on YouTube while newspaper movie advertising remains down.

So with just 67 employees and relying on the general public and others to provide product at no charge, which kind of business – YouTube or traditional media -- do you believe is going to have the highest margins?

Wall Street liked Google’s purchase and moved the shares ever more up. This week many newspaper companies are announcing their third quarter results and the expectations from media analysts is that it’s going to be more bad news, with many 2006 and 2007 traditional media revenue forecasts already lowered.

Gannett, the largest US newspaper company, began the reporting season with third-quarter profit down $36 million from the year before, but blamed stock option expensing for the fall. Revenue rose 2.7% to $1.91 billion, and they’re real pleased with that. But when one writes about the Internet one doesn’t deal with single digit percentages, but rather 20% and 30% gains whether it be revenue increases, increased viewers or whatever.

And there’s the difference. Traditional media struggles just to show any sort of advancement – and Gannett admits its figures benefited from their Internet properties and one-time television advertising boost. . As its third quarter report said, “Our performance this quarter was led by top-of-the-industry television results, fueled by strong political advertising demand. Our online and non-daily efforts again contributed positively.” You’ll notice daily newspapers are missing from that!

When major traditional media companies discovered a couple of years back they needed to get into the Internet big-time they did deals in the $400 - $600 million range which at the time were thought to be huge overpayments. Those investments today are helping such companies as the New York Times (about.com) and Dow Jones (MarketWatch) to show decent results each quarter.

But interestingly the folks selling out didn’t have much faith in those traditional media businesses that were buying them and nearly all such deals were done for 100% cash, and the share price history of the past two years shows they were right to do so. The guys at YouTube, however, found themselves with a different kind of suitor and that made it okay to do an all-share deal.

Just ask yourself, if you were offered New York Times shares or cash for your business, which would you take? And if you were offered Google shares or all cash, which would you, take?

So it’s not difficult to understand why Google went after YouTube – but it would be interesting to know the formula they used to agree on price -- just as Yahoo bought the six-month JumpStart that allows users to edit their videos on line (and that price was never announced), and News Corp. bought MySpace that controls about 20% of the Internet video usage, and why none of those companies are showing any interest in such major traditional media properties such as those owned by Tribune were they were to come up for sale after Tribune’s business review is completed.

After all, it is clear for all to see -- the name of the game today is not newspapers or magazines, or even television. It’s the Internet, and more exactly it’s Internet search and it’s Internet video, and guess which company now has its feet planted firmly in both.

When Google made its $1.65 billion purchase of YouTube three major music companies were absolutely delighted - October 21, 2006

Just hours before the purchase they bought into YouTube themselves and therefore stood to make around $50 million on the Google purchase.

So why did YouTube sell those shareholdings before the Google deal was done? Because those music companies have been crying “foul” for a long time now that their music videos are streaming on YouTube as copyright infringements and YouTube has not paid any licensing fees.

This was as quick a way as any to feed some money to the music companies and prevent any legal action.

The companies getting the windfall were Universal Music, SonyBMG, and Warner Music.

Meanwhile, YouTube has removed 29,549 video files following a demand from Japanese media companies that their copyright was being violated.

Television, movie and music clips were removed at the request of a copyright group representing 23 Japanese media companies.

The State of the Print Media in the World New! October 2006

For $1.65 Billion Google Could Have Bought Any Number of Traditional Media Properties Producing Good 20% Plus Margins, But Instead It Buys An Internet Start-Up That Doesn’t Even Have An Established Revenue Stream. Kinda Makes One Wonder Why?

When Google made its $1.65 billion purchase of YouTube three major music companies were absolutely delighted - October 21, 2006

The State of the Print Media in the World
New! October 2006