Google snatchs up YouTube for $1.65B

 Google Inc. is snapping up YouTube Inc. for $1.65 billion in a deal that catapults the Internet search leader to a starring role in the online video revolution.

With YouTube, Google adds the largest video-sharing site on the Web and an audience that watches more than 100 million clips a day.

The all-stock deal announced Monday unites one of the Internet's marquee companies with one of its rapidly rising stars. It came just hours after YouTube unveiled three agreements with media companies in an apparent bid to escape the threat of copyright-infringement lawsuits.

The price makes YouTube, a still-unprofitable startup, by far the most expensive purchase made by Google during its eight-year history.

Although some cynics have questioned YouTube's staying power, Google is betting that the popular Web site will provide it an increasingly lucrative marketing hub as more viewers and advertisers migrate from television to the Internet.
''We are natural partners to offer a compelling media entertainment service to users, content owners and advertisers,'' said Eric Schmidt, Google's chief executive officer.

YouTube will continue to retain its brand, as well as all 67 employees, including co-founders Chad Hurley, 29, and Steve Chen, 28, who studied computer science at the University of Illinois. The deal is expected to close in the fourth quarter of this year.

''I'm confident that with this partnership we'll have the flexibility and resources needed to pursue our goal of building the next-generation platform for serving media worldwide,'' CEO Hurley said.

While most videos posted on YouTube are homemade, the site also features volumes of copyrighted material -- a problem that has caused some critics to predict the startup eventually would be sued into oblivion, much like the once-popular music-sharing site Napster.

The video library is eclectic, featuring everything from teenagers goofing off in their rooms to William Shatner singing ''Rocket Man'' during a 1970s TV show.

While Google has been hauling away huge profits from the booming search market, it hasn't been able to become a major player in online video.

That should change now, predicted Forrester Research analyst Charlene Li. ''This gives Google the video play they have been looking for and gives them a great opportunity to redefine how advertising is done,'' she said.

Investors applauded rumors of the acquisition as Google shares climbed $8.50, or 2 percent, to close at $429 Monday. The deal was announced after the market closed.

Selling to Mountain View, Calif.-based Google will give YouTube more technological muscle and advertising know-how, as well as generate a staggering windfall for a 67-employee company that was running on credit-card debt just 20 months ago.

YouTube's worldwide audience was 72.1 million by August, up from 2.8 million a year earlier, according to comScore Media Metrix.

YouTube's conciliatory approach with major media has recently yielded several licensing and promotional agreements that have eased some of the copyright concerns while providing the company with some financial breathing room until it becomes profitable.

To conserve money as it subsisted on $11.5 million in venture capital, YouTube had been based in an austere office above a San Mateo, Calif., pizzeria until recently moving to more spacious quarters in nearby San Bruno.

As its negotiations with Google appeared to near fruition, YouTube on Monday announced new partnerships with Universal Music Group, CBS Corp. and Sony BMG Music Entertainment. Those alliances followed a similar arrangement announced last month with Warner Music Group Inc.

The acquisition also illustrates how established Internet and media companies are snapping up start-ups.

Last month, Yahoo purchased Jumpcut to add video sharing and editing services. Sony, producer of the ''Spider-Man'' films, bought video-sharing site Grouper Networks Inc. for $65 million in August. News Corp., controlled by Rupert Murdoch, bought the parent of MySpace.com a year ago for $580 million.

Google's YouTube coup might intensify the pressure on Yahoo to make its own splash by buying Facebook.com, the Internet's second most popular social-networking site. Yahoo has reportedly offered as much as $1 billion for Palo Alto-based Facebook during months of sporadic talks.

The sale is a windfall for Sequoia Capital, which has invested $11.5 million in YouTube since November, according to YouTube's Web site.

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