The New York Times is reporting that the deal to allow copyrighted material from Sony BMG and Universal Music Group, which followed an agreement struck between YouTube and Warner Music, was rushed through the final hours before the Google acquisition so that the labels could benefit from the transaction. That may have been illegal.
Here's the key passage:
YouTube’s deals with Universal and Sony BMG came hours before it announced its deal with Google.
Indeed, people involved in the discussions said that the music companies rushed to complete the deal ahead of the YouTube deal, in part so that it could benefit in the jump in YouTube’s value.
What this implies is that the YouTube guys told representatives of at least two companies about the pending Google acquisition as a certainty in order to gain leverage in another negotiation, sharing material information about Google that other investors were not privy to. Unless I am mistaken, this is a violation of Security and Exchange Commission's Regulation FD, which requires material information be shared with all investors in a timely fashion. The fact that none of the companies involved would respond to the Times' queries suggests they know they may have been caught with their hand in the cookie jar.
Under the terms of the $1.65 billion transaction between Google, a publicly traded company, and YouTube, a privately held company, the YouTube team should have been restricted from sharing that information with others, especially to provide Sony BMG and Universal Music Group an advantage over other investors in Google. Essentially, the two companies were negotiating a Google stock deal, not a YouTube deal.
It appears that the only reason the agreement between YouTube and these two companies happened was to generate an immediate profit from the sale of Google stock after the stock-only acquisition of YouTube. Warner Music's deal, which was in process before the Google deal, seems to be clean, but this is a very troubling turn of events.
Google investors were not alerted to the transaction before it happened, yet the value of their stock was impacted by the information Sony BMG and Universal acted on during the last hours before the YouTube deal was announced. That, to me, seems to demand some review by the SEC.
We have to ask if the announcement by Google that it had acquired YouTube was held off to give YouTube time to close the music label deals, which included equity stakes in YouTube. In practice, it is little different than the back-dating of options controversy currently jangling the value of many Silicon Valley stocks.
Looks like Web 2.0 just got its first corporate scandal. Indeed, Web 2.0 has grown up.