PRESENT POINT POWER

BUYS

FOR A BARGAIN?

GOOGLE Bought YOU TUBE for US$1.65 BILLION With Much CASH & EQUITY AT Hand; BEATING A LAUNDRY LIST Of POTENTIAL BUYERS Like YAHOO & MICROSOFT Etc.
The company still has a market capitalization of $128 billion. And it has mountains of money. As of June 30, the company had $4 billion laying around its Mountain View, Calif. offices. So WHY not BUY?

Why Buy YouTube? Why Not?; Louis Hau and Rachel Rosmarin 10.06.06, 6:20 PM ET

Why would Google pay $1.6 billion for YouTube? Because it can.
That's the instant reaction among media and tech types Friday to reports that the search giant is considering buying the immensely popular video-sharing site.
A deal, reportedly still in early stages, would give Google (nasdaq: GOOG - news - people ) the kind of clout in the fast-growing market for video content that it already enjoys in the Internet search business. In the last week of September, YouTube drew almost half of all United States visitors looking for Web video, according to research firm Hitwise, Inc.
The purchase would also solve a problem, albeit a nice one, that has recently been worrying Google executives: What should they do with all the cash and equity the company has amassed? Even after Google's stock has dropped from its high of $470 early this year, the company still sports a market capitalization of $128 billion. And it has mountains of money: As of June 30, the company had $4 billion laying around its Mountain View, Calif. offices.
And while the reported price tag would make a YouTube deal the largest acquisition that Google has made in its eight-year history, a purchase would actually fit Google's pattern of buying small, early stage companies. For all the noise that YouTube has made in the last year, the company still employs just 60 people at its San Mateo, Calif. headquarters.
The potential deal was first reported in the technology blog techcrunch; neither Google or YouTube would respond to requests for comment Friday. YouTube co-founder Chad Hurley did spend the day at Google's headquarters this week, but his visit didn't raise many eyebrows at the time--the search giant was hosting one of its "Zeitgeist" conferences, aimed at advertising and media companies.
Google already has its own video service, which it launched in January. But the offering hasn't enticed nearly as many web surfers as YouTube--Hitwise pegs its most recent market share at about 12%. But both of the companies have drawn howls from media companies who have complained that users are posting copyrighted videos to the sites. Last month, Doug Morris, head of Vivendi's (nyse: V - news - people ) Universal Music Group, threatened to sue YouTube if it didn't pay his company for the rights to its music and videos, or take them off the site.
Those copyright issues are also what skeptics have thought would ultimately doom YouTube--according to that logic, either YouTube will have to pare down the 100 million videos it hosts on its site or spend all of its time fending off lawsuits.
Internet entrepreneur Mark Cuban, who has frequently argued that YouTube's copyright issue will cripple the company, said those same concerns should dissuade Google from making the deal. "They'd be crazy to. What [Google] went through when they started all their video originally, they thought people would appreciate the traffic," he said Friday. "But it didn't turn out that way. YouTube is in a far worse violation of copyright."
The counterargument: If anyone has enough resources to handle a slew of copyright complaints, it's Google.
"It makes a strange kind of sense," said Forrester Research (nasdaq: FORR - news - people ) analyst Josh Bernoff, who predicted last month that legal issues would kill YouTube. "To solve illegal content problem requires mostly an automated solution. Who do you think would be better at solving that problem? The engineers over at the Googleplex or the overworked 60 people at YouTube? It's true that Google presents a very attractive target for a lawsuit. But Google has a lot of assets with which to negotiate."
Executives at other startup video companies said they would welcome a Google-YouTube deal.
"It's a sensational validation of how significant online video and its attendant opportunities are,'' said Revver.com co-founder and Chief Executive Steven Starr. "I think it expands the competitive landscape dramatically.''
Google's formidable online advertising muscle could help drive more ad dollars into online video sites, so it would be "a net win for everybody in the space," said Break.com Chief Executive Keith Richman.
"You're delivering an audience and a community that Google doesn't already have despite the fact that they have mass reach in certain ways,'' Richman said. "They're accelerating their ability to enter a space where someone else has already established a reputation in.''
But Google isn't the only big media company with a potential interest in YouTube--the company has a laundry list of potential suitors. Here's a quick rundown:

Yahoo! (nasdaq: YHOO - news - people )--Yahoo! already streams billions of video clips a year, but most of them are professionally made clips from music and movie studios. In a bid to offer amateur video-sharers something they don’t already have, Yahoo! acquired online video-editing tools company JumpCut last month. “People interested in creating now have an interesting place to go in Yahoo!,” says JumpCut Chief Executive Mike Folgner. “The other leaders are going to have to do something like this very soon.”
Microsoft (nasdaq: MSFT - news - people )--The software company, trails Internet competitors like Yahoo!, Google and AOL in most areas, and it's moving slow with user-generated video. Its first offering, Soapbox, launched in invitation-only form on Sept. 18. Its professional video site, MSN Video, has little more than 5% of the video market. Yet Microsoft’s MSN Spaces blogging platform is the most widely used around the globe, according to ComScore, so the company likely wants to get as many of its 100 million users of that product onto Soapbox. If that doesn’t pan out soon, expect Microsoft to belatedly consider other options.
Viacom (nyse: VIA.B - news - people )--Viacom Chairman Sumner Redstone hasn't written off pursuing YouTube; on Wednesday he told television host Charlie Rose that, “It’s a very good company. After letting MySpace slip away to News Corp. a year ago, Redstone could be eager to seal a deal with YouTube. Viacom already licensed its own content to Google Video in a deal announced in August; it bought the video-sharing site iFilm, for $49 million a year ago.
News Corp. (nyse: NWS - news - people )--Online video is a high priority for Rupert Murdoch. But why buy YouTube when News Corp.'s MySpace already generates more video streams? Even as YouTube and MySpace wage a battle for eyeballs, News Corp. inked a huge advertising deal with Google in August, making Google the exclusive search provider for MySpace and guaranteeing News Corp. shared ad revenues of at least $900 million by mid-2010.
Time Warner (nyse: TWX - news - people )--At the same time that the company's AOL unit dropped the remaining subscriber walls around its content, it launched a new video portal with user-generated video content. Meanwhile, it is still refining its strategy for implementing Singingfish, purchased in 2003, and Truveo, acquired in December 2005. Both sites gave AOL ample video search assets, but the company has yet to breakthrough as the clear leader in Web-video trawling--its share of the online video market doesn’t break into the top five, according to Hitwise.
Sony (nyse: SNE - news - people )--The Japanese media and electronics conglomerate hasn't done much on the Internet to date. But it clearly has some interest in doing so: It paid $65 million for online video startup Grouper.com in August.
Walt Disney Co. (nyse: DIS - news - people )--Disney's subsidiaries, including Walt Disney Studios, ABC and ESPN, own one of the largest content libraries around. But the company has exhibited little interest so far in user-generated video. Meanwhile, the company has proved willing to experiment with online video in general--it was the first to let Apple Computer's (nasdaq: AAPL - news - people ) iTunes sell its TV programs and movies online, and it has experimented with streaming its television programming for free on the Web.
NBC Universal--User-generated video doesn't appear to be a high priority for the General Electric (nyse: GE - news - people ) unit, although it was one of the first major content owners to partner with YouTube, where it hosts a channel. The company also launched an ad-supported online video service in September together with a team of content partners, including Forbes.com.
Comcast (nasdaq: CMCSA - news - people )--In June, the nation's largest cable company acquired thePlatform, a Seattle maker of digital media software to distribute online audio and video. User-generated video doesn't appear to be a high priority for Comcast, which is focused more on competition with major telecom companies to sell voice, broadband and video services.