NEW YORK -(Dow Jones)- YouTube, Inc. averted copyright infringement woes when it inked content sharing pacts with media companies the same day it was bought by Google Inc. (GOOG). The social networking website was considered a target for lawsuits by music, movie studios and network companies based on copyright violations for unauthorized content transferred on its site.
The company signed agreements with two major record labels and CBS Corp. (CBS) Monday, a sign the two industries prefer to form profitable alliances in lieu of costly battles in the courts. "It's an indication that the creative community and YouTube want to be in business, not fighting," said Lawrence Iser, a copyright attorney in Los Angeles. "What you are going to see is the rest of the creative community entering into similar agreements with YouTube and Google, " he said. "It's the smart thing to do. Look at the power of YouTube. It is a tremendous marketing tool."
Indeed, YouTube's growth has stupefied the industry. The site was launched less than a year ago and quickly developed a large and committed network of users who create, share and blog about video content. YouTube says 100 million of its videos are viewed each day, and the site accounts for 46% of online video traffic, according to Hitwise.
"This is a really crucial step in the development of advertiser-funded music on the Internet," said Mark Mulligan, an analyst at Jupiter, of the copyright agreements. "This is a recognition that the Internet is a discovery channel first and a distribution channel second," he added. The percentage of Internet users who pay for music digitally is less than 10%, and the percentage of music available online is between 15% and 20%, according to Mulligan. In addition, he said consumers in the 15-24 age bracket who listen to free digital music are five times greater than those who pay.
Google said Monday it agreed to buy YouTube in an all-stock deal worth $1.65 billion, marking the company's largest acquisition. The deal integrates Google's technical resources and advertising distribution system with YouTube's vast user-generated content and audience. News of the acquisition, followed several content sharing agreements orchestrated by the two Internet companies.
Universal Music, a unit of Vivendi and Sony BMG Music Entertainment will allow their music-video libraries available on YouTube and share ad revenue related to user-generated content that uses their music. Separately, YouTube will allow CBS and its Showtime premium channel to remove content that infringes on its intellectual property, or allow it to remain and share in any ad revenue.
Google's video-sharing site reached similar arrangements with Sony BMG, a joint venture of Sony Corp. (SNE) and German media giant Bertelsmann AG, and Warner Music Group Corp. (WMG), which recently signed its own content partnership with YouTube.
YouTube's agreement with Universal Music is particulary important given the company's chief executive Doug Morris told investors last month that YouTube violated copyright laws and the company hinted that it was eyeing a lawsuit. Still, there are hurdles to overcome on the copyright issues as YouTube also has to reconcile legal issues with music publishers, movie studios and other networks. The entertainment industry is seen not wanting to repeat the music industry's mistake with Napster, which forced the music-download service to shut down. But, after costly litigation, record companies didn't stop the consumers from downloading music online and suffered somewhat of a backlash.
Quinn Heraty, an entertainment lawyer, said music labels suffered "a huge black eye" after Napster. Now, the industry likely "thinks it's a bad business decision to try and choke off all of these alternative distribution vehicles", she said.
During a conference call Monday about the Google acquisition, YouTube co-founder Chad Hurley, said the company has always respected rights holders." What this deal allowed us to do is focus on that much more than we ever could before, to have the resources to build the systems so copyright holders can benefit from out site. That will continue," he said.
Todd Dagres, general partner at Boston-based venture capital firm Spark Capital, noted that there is still a lot of content not available to YouTube, which makes it still vulnerable to copyright concerns.
Currently, it's a "forgiveness rather than permission system," he said, adding the recent agreements are geared more for promotional use, rather than distribution.
Internet Service Providers also have some protection under the Digital Millennium Copyright Act of 1998, which limits copyright liability for ISPs, while requiring them to promptly remove content identified as a copyright infringement. "We cooperate with content owners to remove things whenever we find them, or when we hear about them. So we think that, with some deals like the ones you saw this morning, we can take even greater steps to work with content owners to protect their intellectual property rights," said David Drummond, senior vice president of corporate development at Google, during the conference call.
-By Angela Pruitt, Dow Jones Newswires, 201-938-2269, angela.pruitt@dowjones.com
Dow Jones Newswires
10-10-06 1548ET
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