If anyone was wondering why Google made an all-stock deal with YouTube to acquire it, news of negotiations with media companies that could require big cash payments should answer that question.
The report from Financial Times cited insider sources who claim Google CEO Eric Schmidt and other executives have been making the rounds of big media. The talks with Viacom, News Corp, and others could lead to Google paying out tens of millions of dollars for the right to have copyrighted video material appear on YouTube.
Fortunately for Google, the company has big bags of cash. While they probably don’t keep it in garbage bags in the garage like Jo DiMaggio reportedly used to do, their financial statements cite around $10 billion in cash and similar assets.
Take it as given that the media companies read Google’s financial statements too. Financial Times said Google has offered one unnamed company $100 million for a two year license for using its content.
If Google had to pay a billion dollars to get the Time Warners and NBC Universals out of Google’s inbox, and kept them at bay for two years, that should be a good deal for the company. With 2006 revenue anticipated in the $10 billion range, and a potential windfall in 2008 when conditions of the Google-AOL deal should require a nice payday from Time Warner, the stars seem aligned for Google to get these media companies paid off and take care of business for the next 24 months.
Pete Cashmore posted similar thoughts at his Mashable blog:
In the end, it’s just the same old story, and it’ll probably continue for at least 6 months while the mess gets sorted out. YouTube will get sued a few more times, the big media companies will get massive checks in the mail and the video-sharing site will come out on the other side, largely unscathed by the whole ordeal.
Edelman VP and blogger Steve Rubel observed that Google Video and its highly touted partnership with the NBA has come to an end, just as the season began:
All games, which had been previously available for a fee, have been pulled down from Google.
My gut is that Google is having a lot of difficulty selling content on Google Video. If the NBA were making money with Google, you can bet they would have stayed there. In fact, they probably would have used it as a platform to promote their new League Pass Broadband service – but they didn’t.
NBA commissioner David Stern has overseen a resurgence in his league, with lots of amazing hoop talents like LeBron James drawing plenty of fan interest. Stern doesn’t make bad business decisions, so this should be seen as a big thumbs-down for Google Video.
The Financial Times referred to Google’s talks with media companies as a “frantic round of negotiations.” If Google was looking at the collapse of its search advertising business unless negotiations could avert that, then yes, talks probably would be frantic.
But Google can afford the price. They know it, the media bigwigs know it. We just have to wait for them to hammer out a number while someone at Google writes the checks. Wouldn’t it be cool if they brought back Larry Page’s Lego printer to print them out?
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David Utter is a staff writer for Murdok covering technology and business.
