Maybe Mark Cuban had a point about YouTube after all.
On Tuesday, Viacom filed a $1 billion copyright lawsuit against YouTube and its parent company Google. The lawsuit came about six months after the search giant announced it would spend $1.65 billion in stock on the fast-growing video-sharing site and after Cuban called Google buying YouTube "moronic."
While it's far too early to say how the lawsuit will turn out (indeed, Viacom and YouTube could still strike a deal for the media company's content), it's not unfair to at least ask the question: Was Cuban--the owner of the Dallas Mavericks professional basketball team, chairman of cable network HDNet, the guy who sold Broadcast.com to Yahoo for $5 billion in 1999, and a Don Quixote of sorts when it comes to YouTube--right?
"I do think in many ways YouTube represents a heavy burden," said Danny Sullivan, editor of Search Engine Land. Google "was already seen--rightly or wrongly--as being cavalier to copyright in some quarters, especially over its controversial book-scanning efforts. YouTube just added fuel to the fire. In the end, I do think Google will come up with a solution to all this, but it's going to take a lot of work."
In fairness, Cuban, who is trying to get a company with a lot of original content off the ground, is hardly a neutral observer of YouTube. But he was one of the few well-known people in the tech industry to ask if YouTube's potential legal headaches outweighed its benefits. And $1.65 billion in stock is a hefty sum even for a company like Google, which turned a $1 billion profit in its most recent quarter.
Most Google watchers say the $1.65 billion could still prove to be money well spent, if YouTube makes peace with the media companies and finds a way to neatly mesh it with user-generated content. And it's not like Google's executives came into the YouTube deal with blinders on. The company disclosed in a regulatory filing that it had put about $200 million from the deal in escrow "to secure certain indemnification obligations." In other words, it put money aside in case YouTube attracted a heap of copyright trouble.
Google CEO Eric Schmidt even quipped recently about YouTube's potential problems. "I'm sure we're arrogant," he said at a recent industry conference, according to CNN. "But I have learned that as part of being a player in the media industry, part of negotiations is that everything is leaked and you are sued to death."
Also, YouTube has, in fact, had better luck negotiating deals with other content companies such as CBS, the BBC, Fox News, the National Basketball Association, Sony Pictures Classics, Sony BMG Music Entertainment, Universal Music Group and Warner Music Group. Viacom and YouTube had been trying to do a similar deal, but discussions broke down in February when Viacom demanded that YouTube remove from its site pirated copies of its programming and accused YouTube of being "unwilling to come to a fair market agreement." Viacom hasn't publicly said what it considers "fair market," but a recent Wall Street Journal account of the negotiations said Viacom was asking Google to guarantee as much as $500 million in advertising revenue in exchange for its content.
"Google has plenty of legal albatrosses. This doesn't even register compared to the other problems they face."
--Eric Goldman, assistant professor, Santa Clara University School of Law
Google says it has done nothing wrong, that it removes infringing material when asked to do so by copyright holders and has been discussing licensing deals with the major media companies to give them control in distributing their content and monetize it.
"We're confident in our legal case," Glenn Brown, product counsel for Google and YouTube, said Tuesday. "The DMCA (Digital Millennium Copyright Act) makes it very clear that Web hosting companies like YouTube...enjoy a safe harbor provided they make the removal process (of copyrighted material) straightforward for content providers as laid out by statute. We meet those requirements and go above and beyond them in helping content providers identify copyright infringements."
Some observers still think the lawsuit was likely more of a tactical move on Viacom's part to help it gain advantage in its negotiations with Google. And they point out that Google is increasingly comfortable with duking it out over copyright issues.
"Google has plenty of legal albatrosses," said Eric Goldman, assistant professor at Santa Clara University School of Law and director of the High Tech Law Institute. "This doesn't even register compared to the other problems they face," such as the litigation over trademarks used in paid search in the U.S. and other countries, and over copyright related to images and Google News in the U.S. and Europe, as well as copyright lawsuits over its book-scanning and digitization efforts.
"Some of those implicate Google's core business much more squarely than this lawsuit does," Goldman said. "I can't even track all the patent cases they are involved in, but each one has the potential to be a much more serious risk to their business than this one does."
Predictably, Cuban, in a blog titled "You Go Viacom," said he hoped the suit was more than just a negotiating move. There is no "downside to Viacom to run this one out to the end. If they win the suit, they make their billion dollars, which given this lawsuit could take years, could grow to 10s of billions in damages if Gootube doesn't take any action to stop the ongoing infringing uploaders," Cuban wrote.
And if Viacom loses, he noted, it's basically back to where it is now, with a lot of YouTube users uploading its content without permission.
Analysts urge patience, as "Gootube" figures out how to play nice with the companies creating the content from which it is profiting.
"Was the acquisition a mistake? That's to be determined," said Van Baker, an analyst at Gartner. "This is one round in a 12-round battle."