Google Buys YouTube for $1.65 Billion

Over 30 readers wrote about Google's purchase of YouTube today for $1.65 Billion, as rumored last week. The all-stock transaction is the single largest purchase in the company's 8-year history. The move follows on the heels of Google's convincing Sony and Warner Music to put music videos online for free. Reportedly, YouTube will retain its brand and all its 67 employees, including co-founders Chad Hurley and Steve Chen.

Comments

YouTube not evil!

[mrbanzai]

SO glad that YouTube will now be sheltered by "the good guys" ... assuming they stay the good guys *cautious glance over shoulder*

Re:YouTube not evil!

[vertinox]

SO glad that YouTube will now be sheltered by "the good guys" ... assuming they stay the good guys *cautious glance over shoulder*

I'm more than happy with that. At least now Youtube will have Google Adsense ads rather than Myspaces "epileptic punch the monkey you win a frigging iPod PS3 viagra sweepstakes" flash banner ads with 400 double click pop ups and unders.

Re:YouTube not evil!

[walt-sjc]

I see it a little differently. Some modern ads have become so obnoxios that you just can't sit through them. Some are just annoyingly loud with horrible, harsh music or speech, or quickly flash 47 mini video clips in 15 seconds giving you an instant headache... I suppose the ad agency thought they were doing an attention grabber, but instead they have evoked an instant hatred of whatever product was being advertized. On the web, is there anyone that doesn't have a total hatred of X10?

Use tactful, creative, intelligent ads that are non-intrusive and I won't be blocking / skipping them.

I was watching a football game this sunday and saw an ad for a car that was done up like a drug ad - guy who is normally clostraphobic in small cars finds the new car roomy enough - at the end he goes into a field of wildflowers with a puppy and the model name of the car is shown with the MPG shown in small print much like drugs show the dosage. It was whitty, creative, and not obnoxious at all. I actually backed it up with Tivo and showed it to my wife who also got a kick out of it.

Integration with Google Video?

[mysqlrocks]

Even though they say "YouTube will retain its distinct brand identity" I wonder how much integration they will eventually do with Google Video. Will YouTube videos be search-able on Google Video, for example? Google is usually good at not integrating just for the sake of integrating. For example, Google Analytics still uses a Flash based map instead of the Google Maps API.

Good buy for Google

[sbrown123]

I know some people won't get why they did this, or how Google will make money from YouTube. I will explain:

First, Google makes money through advertisement. Currently simple text banner ads. But a quick look at other sites will show you a growing interest in video ads. YouTube has a lot of visitors, and if Google plays this correctly they can make more advertisement dollars.

Secondly, YouTube signed some nice contracts with the likes of CBS and two music labels.

Re:Good buy for Google

[sporkmonger]

I expect it was the contracts more than anything that justified the price. The original purpose though, was almost certainly to consolidate the two biggest video players into one. That said, the only reason this happened at all was because it was an all-stock deal. Google's stock was at around $430 today, which a lot of people seem to think is still over-valued, especially by people within Google. If the internal Google people think their own stock is over-valued, it makes sense for them to try to get the most out of it while it's still high.

Re:Hmmmm

[motank]

well the mpaa and riaa might have been itching to pick on poor little youtube but do they wanna pick a fight with google? i expect google will force these companies to deal with it and accept the internet isn't gonna go away (and share some ad revenue)

$1.65 billion IN STOCK

[tpengster]

Keep in mind that Google is not paying dollars -- they are trading Google stock for YouTube stock. So even though $1.65b is a scary number, what you should be asking yourself is not whether YT is worth $1.65b, but whether it is worth 1.25% of Google.

Re:Hmmmm

[Jah-Wren Ryel]

The bubble will burst on this purchase. There's too much copyright infringement going on @ Youtube.

And more importantly, now there is someone to sue. Someone with lots and lots of money, so all those $200K per infringement civil awards actually have a chance of being paid out. Watch for Hollywood to their absolute damndest to take Google's IPO money the same way the RIAA took mp3.com's $200M of IPO cash.

Google made money on this

[nate nice]

Although I disagree with this long term, what most people haven't realized is that Google got YouTube for free. On news they might buy last week, their stock rose ~2%. It rose even more today with more news and will probably raise a bit more tomorrow. So, 1.65 billion in stock was given away which is something like 1.5% of the company. If they just increased the companies worth by 5%, did they not just make a profit buy "buying" this company?

Long term it might not turn out that way, but annually this is great.

"Stupid?" Please justify.

[tpengster]

OK, I'm seeing a lot of posts calling this acquisition "stupid" and i'm seeing the word "bubble" a lot. Now, many of these posters may know exactly what they are talking about, they may be far more informed about the business prospects of both companies than I am.

But if you just say "this is stupid" without any analysis of the future earnings of these businesses, you are adding nothing to the discussion.

Consider the following: Google is paying approx. 3.85 million shares of Google for YouTube. What is the value of those shares? Probably less than you think. What kind of competitive advantage does google have to justify such a high P/E ratio? They have the smartest technical people in the valley, and a great culture, those have to be worth something. But I'd argue that thy aren't worth $430 a share. What happens to google.com's traffic once people start using MSN search by default in the IE7 search box? Well, I can't tell you exactly what will happen, but I've got a decent guess. It'll PROBABLY GO DOWN, at least the growth rate. Does this sound like a company that is worth 62 times earnings ($130b by market value)?

I'd argue that if there's a bubble here, it's probably in the price of Google, not the price of YouTube. These things are hard to predict because you don't know exactly how the technology, and the underlying social dynamics of the users, will play out. And yes, the legal issues are thorny and I don't feel qualified to analyze those (though I'm sure Google's lawyers are more than qualified to). But i'd argue that Google ought to be making MORE acquisitons with its stock, not fewer.

Re:So ungoogle

[Firehed]

Google's worth about a hundred billion dollars? It's impossible to nail that figure and not be evil.