Google/Youtube: Details From the Inside

MCMTuesday, October 31, 2006

Blog Maverick has the guts of an email that was posted to the Pho list yesterday which gives a peek into the mechanics of the Google/YouTube deal. And calling it Google/YouTube is a bit misleading, because it's really Google/YouTube/Big Media...

The bit that I love the most is this snippet:

The media companies had their typical challenges. Specifically, how to get money from Youtube without being required to give any to the talent (musicians and actors)? If monies were received as part of a license to Youtube then they would contractually obligated to share a substantial portion of the proceeds with others. For example most record label contracts call for artists to get 50% of all license deals. It was decided the media companies would receive an equity position as an investor in Youtube which Google would buy from them. This shelters all the up front monies from any royalty demands by allowing them to classify it as gains from an investment position. A few savvy agents might complain about receiving nothing and get a token amount, but most will be unaware of what transpired.

Now I don't pretend to know anything about anything, but it seems to be that this particular bit of news, broadcast nice and wide (like the Digg story is wont to do) will mean the big labels will be getting lots of tense phone calls from nouveau-savvy agents looking for their share. And I would say they deserve it, because after all the labels are protecting artists, right? They're certainly not purposely trying to find loopholes to deny money to the content producers that made them rich. Certainly not.

What I also find interesting is how Viacom is nixing Comedy Central clips from YouTube, despite this sort of a deal. They must either be very tough negotiators or fantastically stupid, because they're kicking their viral network in the face. They don't lose any money letting Stephen Colbert play on YouTube, but the less he's there, the less free promotion they'll get. If I were them, looking at a $50 million peace offering which (in a roundabout way) would be compensation for their clips being online... hell, it's like THEY'RE getting paid for someone ELSE doing their promotion, and they're STILL not happy.

I can't yet tell what's going to come of this, but I have a feeling it may hurt the Google deal, and end with YouTube going under. If the various agents eat the settlement pie from the labels, then the deal with them may start to fizzle. If it starts to fizzle, Google may call it off (because they're really just buying a big liability machine at that stage) and leave YouTube with a bunch of cranky, angry big media companies that are pissed they lost their $50M. And that, as they say, is that.

Mark Cuban didn't set this up, and he didn't even write the email that exposed it, but by putting it out for the world to see, I think he's gone and proven himself right about YouTube being a bad acquisition.


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