Google ‘to buy YouTube’

Over the weekend, the Internet has been awash with rumours that Google is in talks to buy the video-sharing site YouTube. The Wall Street Journal, which broke the story, has quoted sources ‘familiar with the matter’ claiming the asking price is around $1.6 billion – not bad for a site yet to celebrate its second birthday.

On the face of it, there is a lot to commend such a deal. YouTube currently shows around 100 million videos a day and a bill for bandwidth to make the eyes water. In addition, the site has yet to prove that it can make serious money. On the other hand, Google knows a lot about massive bandwidth requirements and the search engine can certainly afford to buy YouTube with its $10 billion cash pile. Finally, Google Video is a poor third in a market that has shown some of the biggest growth in the past 18 months.

According to Hitwise, the traffic to YouTube overtook Google Video in early 2006. Last month YouTube’s traffic was four times the size of Google Video. On the other hand, Google is YouTube’s second most important source of traffic, other than MySpace. In addition, Video is well down the list of the most popular Google sites, with less than half a per cent of Google’s total traffic behind Search, Mail, News and Blogger.

The big hurdle is the issue of copyright infringement. While the site is best known for videos of unsigned bands and home videos from the Jackass generation, there is also a fair bit of copyright material lying around. Universal Music CEO Doug Morris has warned companies like YouTube that ‘We believe these new businesses are copyright infringers and owe us tens of millions of dollars’. Although talks are underway between YouTube and the music and video companies, Google will not want to buy a business that might blow up in its face like a Napster or Kazaa.

All the other major players in the online market have also been linked to a possible buy out of YouTube including Viacom, Microsoft, Yahoo and News Corp, even though the company has said it is not interested in buying the Californian start up and thinks it can do better with a home grown competitor. Recently, chief operating officer Peter Chernin told investors that, ‘If you look at virtually any Web 2.0 application, whether its YouTube, whether it’s Flickr, whether it’s Photobucket, almost all of them are really driven off the back of MySpace, there’s no reason why we can’t build a parallel business.’

This is the other major issue facing a possible Google buyout: can YouTube hold onto its traffic when some of the major providers of upstream traffic such as MySpace launch their own rivals?

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