Google’s inordinate 26% profit margins are due, in part, to its shrewd, but not content owner friendly, Google business model by “fair use” and “safe harbor,” as I discussed last weekend in “Google ’safe harbor’: ‘Nice’ way to do business?”:
Google YouTube $148 billion market cap business model fueled by selling ads against content it has not compensated rights holders for and that it has no explicit legal rights to use.
As Google’s market cap continues to balloon, so does Schmidt’s confidence in his approximately 100-person strong in-house legal team, reinforced by unlimited recourse to legal counsel around the world.
Schmidt is relying on his legal war chest to do battle in courts with the aim of establishing a body of legal interpretation favoring his “Web 2.0 thing,” a free content for Google business model.
Google’s October 9 afternoon announcement of its deal to acquire YouTube was preceded by a morning round of simultaneous YouTube and Google announcements of authorized content distribution deals (see “Google Video, Google AdSense get Warner Music, Sony BMG Music content” and “YouTube trifecta: CBS, Universal Music, Sony BMG Music deals”).
The following week, the NYT reported “people involved” in the content distribution deals revealed indirect “compensation” to content owners:
Vivendi’s Universal Music Group, Sony and Bertelsmann’s jointly owned Sony BMG Music Entertainment, and the Warner Music Group — each quietly negotiated to take small stakes in YouTube as part of video- and music-licensing deals they struck shortly before the sale.
I discuss such a content for stock arrangement in “Google YouTube buys off music companies on the cheap”:
This week, Mark Cuban treated the world to “intimate details” gossip about Google-YouTube (see “Citizen journalism by email ‘gossip’: Fourth estate?”), purported dealings between Google and content owners:
“Google’s uncanny ability to cow the world’s content owners into Google submission is a key factor in its $130 billion market capitalization and its 25% profit margins (see Google: Web friend or web foe?).
Google’s financially savvy all-stock purchase of YouTube enables Google to acquire the site via a Google-friendly “cheap” stock-for-stock deal (see Google buys YouTube on the 'cheap': $1.65 billion in Google stock and YouTube gambles big on Google stock).Google has also apparently succeeded in neutralizing potential copyright infringement claims from three of the four largest music companies in the world, collectively representing more than 50% of the $30 billion plus global recorded music market, at the very Google friendly cost of about $50 million in stock.”
In the months preceding the sale of YouTube the complaints from copyright owners began to mount at a ferocious pace…Youtube knew they had an issue and had offered a straight revenue share deal if the complainants would call off the dogs and give them time…the decision was made to negotiate settlements with some of the largest music and film companies.Yesterday,FT.com chimed in, citing “people familiar with the talks”:
Google is engaged in a frantic round of negotiations aimed at persuading traditional media companies to supply their content to YouTube, the video website it bought last month for $1.65bn, and ward off a potentially crippling round of lawsuits.
Chief executive Eric Schmidt and other managers have met CBS, Viacom, Time Warner, NBC Universal, News Corp and others, say people familiar with the talks, offering tens of millions of dollars in upfront payments for the right to broadcast their video content legally on YouTube.
For Google the talks could determine whether its investment in YouTube gives it a leading position in the fast-growing online video market or results in a wave of lawsuits for copyright infringement.
Google bribing content owners? Makes for tantalizing conversation. But who is doing the tantalizing?
Mark Cuban: posted anonymously, “I trust the source”
NYT: people involved in the talks
FT: people familiar with the talks
In “Citizen journalism by email ‘gossip’: Fourth estate?” I lament “reporting” by anonymous and/or unverified “rumors” and dissect the YouTube vs. Comedy Central orchestrated email campaign last weekend. Although I was a “lucky” recipient of the “source” email, I did not “go with it,” after investigating its merits. The NYT and CNBC, however, did:
What did I conclude? Nothing. Perhaps some videos were removed for some reason at the request of someone, but no wholesale Comedy Central purge can be confirmed and the validity and motives of the “source” email itself are questionable.
When many in the blogosphere headlined stories off of the “Jeff” email, I attributed the unsubstantiated frenzy to blogging zeal. When I read the New York Times sign-off on the unsubstantiated story yesterday and heard another unsubstantiated take courtesy of the NBC Universal CNBC “On The Money” financial show, however, it raised doubts in my mind about the reliability of any “news” reported, anywhere.
In public comments, Viacom, owner of Comedy Central, did not confirm the NYT and CNBC “reports” of a wholesale Comedy Central purge from YouTube. A Viacom statement to The New York Post:
Like our peers in the media industry, we are focused on finding the right business model for professionally created content to be legally distributed on the Internet. We want our audiences to be able to access our programming on every platform and we're interested in having it live on all forms of distribution in ways that protect our talented artists, our loyal customers and our passionate audiences.
Is Google bribing content owners or are the payoff stories just another round of “gossip”?
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