Google Agrees to Buy YouTube

NEW YORK Google made a bold move today into the online video ad market with a $1.7 billion deal to acquire YouTube.The all-stock acquisition, Google's largest to date, will give it access to a vast library of streaming video, much of it created by YouTube users. Google said it would build YouTube as a platform for both amateur and professional content distribution."This is the next step in the evolution of the Internet," Google CEO Eric Schmidt said in a conference call.The acquisition positions Google as a larger force in the video advertising market, where it has so far played a bit role compared to rivals Yahoo and MSN.The Google Video service has not run pre-roll ads, the most common form of streaming ads online, which Google executives have said are detrimental to the user experience. Instead, Google has stuck with user-initiated video placements on it third-party publisher network.Although advertisers have dabbled with Google's click-to-play ads, agency executives have said those do not hold the same appeal as spots inserted before clips, which deliver a captive audience."Running video ads in banner units has proven less effective than pre-rolls because they do not benefit from the full attention of all the people viewing the content," said Brian Monahan, group communications director at Universal McCann, part of Interpublic Group.But Rick Corteville, executive director of media at Omnicom Group's Organic, believes Google and YouTube combined will develop new social media ad models, giving users more control of the messages they watch. (Like Google, YouTube has shunned pre-roll advertising, focusing its efforts on "brand channels" and click-to-play.)Another potential positive of the deal, per Corteville, is Google's advanced targeting capabilities, which could be employed to show users video ad messages they are most likely to be interested in.But some observers believe the deal will set back the video ad market because Google, flush with cash generated from search listings, will keep in-stream video advertising off YouTube."It's willful and wasteful to pass up that opportunity," said Nate Elliott, senior analyst at Jupiter Research.The deal caps a meteoric rise for YouTube, which in a year has gone from an obscure Silicon Valley startup to a household name and dominant force in the online video ad market.While detractors like Dallas Mavericks owner and former Broadcast.com CEO Mark Cuban have derided YouTube as a new Napster, the company has been adept at skirting potential copyright problems.Earlier today, YouTube and Google said they reached separate agreements with music companies to share in ad revenue generated by user-created content that uses copyrighted material. YouTube struck a pact with CBS and Universal Music Group, whose CEO earlier this month accused MySpace and YouTube of owing it "tens of millions of dollars." Google struck a deal with Sony BMG and Warner Music Group, which had already linked up separately with YouTube.Moreover, Google executives said the acquisition would complement Google Video, which operates much like YouTube by allowing users to upload and share clips.Despite its vast potential distribution as part of Google, the video site has badly trailed YouTube in both visitors and streams, according to research services. According to ComScore, Google Video is the fifth most-popular video site, drawing 11.9 million visitors, compared to YouTube's 19 million. Yahoo and MySpace are the top video destinations.Schmidt said YouTube would not replace Google Video."Google Video is a very valuable part of the Google experience," he said. "It's going to become more integrated with Google overall."

Brand Marketing

Google Agrees to Buy YouTube

Brian Morrissey

About

Subscriptions

Events

Publications

WORK SMARTER - LEARN, GROW AND BE INSPIRED.

Subscribe today!

Brian Morrissey