Google, with a market capitalization of $129 billion and cash and marketable securities of $9.8 billion, acquired YouTube for $1.6 billion. A Forrester Research analyst said that this price tag is "expensive but not unreasonable".
YouTube, an Internet video phenomenon which officially started last December, delivers more than 100 million video clips a day and has about 50 million users worldwide, so purchase price is about $32 user. Despite the millions of people that visit YouTube, it has no profit. It has 46 percent market share, while Google has only a 10 percent, and MySpace 23 percent. YouTube understood better than Google and others that it was not about the video, it's about creating a community around the video.
But YouTube is also facing possible legal challenges over unauthorized posting and sharing of video. Some in the industry have compared YouTube to Napster (see story below). Other companies had also expressed interest in YouTube. Microsoft, Viacom and News Corporation had all visited YouTube's headquarters in San Mateo, California.
Freemium, the successful idea of web products given away for free
The strategy of offering free web services with a premium component has become pretty common on the Internet, and Venture Capitalist have coined a term for it: freemium. Take for example Blogger, Flickr, MySpace, Game Trust, MySQL, Jajah and Skype. Note that this is different from YouTube, Google or AOL, companies that support their free product with advertising.
One big advantage of freemium is that the product adoption frame time is reduced since Web-based user who don't have to pay for it will often start evangelizing the benefits to others (as we did last week when we discovered Jajah.com free phone calling service). A key point when dealing with premium component is to identify quickly a range of revenue sources, making sure that it this paid service soon covers the cost of the free service.
Jumpcut.com, a cool video online editing company, bought by Yahoo!
Yahoo has purchased, for an undisclosed sum, Jumpcut.com, a cool video sharing site that allows to edit and remix movies right in the browser. Jumpcut.com pioneered online video editing technology enabling anyone to become a creator. It works in a simple way: you upload your clips, photos and music, and you find those files on a section called My Stuff; you can get them from there and edit them to tell a story.
"Yahoo! has a reputation for supporting the vision of its companies and we're happy to join Flickr and Del.icio.us as leading social media companies within the Yahoo! family!", said Jumpcut on its blog.
YouTube's play: negotiate with Hollywood while prepares to sell off
YouTube.com, the video site that opened to the public a year ago and shows more than 100 million video clips a day, one-third of the U.S. Web video audience, three times that of Google, continues to find arrangements that could satisfy Hollywood and could avoid to be sued for infringing copyright law. YouTube has become the largest archive of video taken without permission from television shows and movies, and home movies constructed with commercial music.
Mark Cuban, who founded Broadcast.com and then sold it to Yahoo, says that YouTube does not have a viable business other than piracy. "It is absolutely reminiscent of Napster", adds. "Only a moron would purchase it". Doug Morris, the CEO of Universal Music Group, said that YouTube and MySpace "are copyright infringers and owe us tens of millions of dollars".
Recently YouTube signed a complex deal with Warner Music that he hopes will be a model for dealing with big studios and record companies. It intends to share some of its advertising revenue with Warner when copyrighted material is used. However, now YouTube does not have much advertising revenue, as it rejects inserting commercials in front of video segment. It displays graphical banners and text ads, but say it is developing more engaging advertising formats.
Chad Hurley, YouTube's CEO, a 29 years old former graphic designer at PayPal, who got funding and strong support from Sequoia Capital (the powerful VC who backed Yahoo, Google and others), relies, along with his partner Steve Chen, a former PayPal engineer, on the Digital Millennium Copyright Act, which does not require Internet companies to screen material they store in advance, and only forces to remove content when a copyright holder informs them of a violation.
Some say their strategy is to grow rapidly before cutting an advantageous deal taking advantage of having the largest video audience on the Internet.
IPTV brought to sep-top boxes and the PC becomes a profitable market
Interactive Television Network (ITVN) and Communications Technologies are two of the most prominent newcomers planning to experiment with IPTV programming or narrowcasting, as some call it. This type of specialized video programming is generally not available on mainstream cable or satellite services, and it can be viewed on PC's with broadband connections or TV with Internet-enabled set-top boxes.
Those programs include niche sports broadcast, lifestyle reports, interactive karaoke videos, live coverage of local government or detailed information about troops abroad. The companies offering content don't have to pay for part of the broadcast spectrum to carry their programming. Their largest costs go to buying Internet bandwidth, compressing the video, storing the files, marketing and billing. They reach agreements with content owners.
ITVN explains that his company's narrowcasts are aimed at groups of 50,000 to 250,000 people linked by a common interest or demographic. It has developed channels like the Karaoke Channel and LacrosseTV, launched with the National Lacrosse League, which has a fan base of roughly 150,000 people. This programming, which costs $9.95 a month, includes live broadcasts, features on teams and game archives. The set-box is provided free to subscribers.
One of its biggest channels is being developed in association with the Department of Defense. It will cover all the things going on abroad in the military.
Another next channel GoGovTV.com, promoted by Communications Technologies, a broadband network provider in Chantilly, Va, founded by a former Bell Laboratories scientist, will be used for interactive town meetings or broadcasting school concerts. It will cost state and local governments $75 half hour to offer programming to an unlimited audience. Its delivery technology will have interactive elements like polls, voice and other web capabilities. It should go live in October or November.
Last year the number of IPTV (Internet Protocol Television) in North Americas reached 300,000, and it is expected to rise to 1 million by the end of 2006, according to Infonetics Research.