Google Will Face Challenges in Wake of YouTube Acquisition

G00144098

Analyst(s): |

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Summary

The purchase of YouTube presents Google with an opportunity to tap into the lucrative video brand advertising market. But copyright hurdles must be cleared before that can happen.

News Analysis

Event

On 9 October 2006, Google announced that it will purchase the video-sharing Web site YouTube for stock valued at $1.65 billion. Under the terms of the deal, YouTube will retain its name and its offices.

Analysis

The hype and the speculation that preceded the Google-YouTube deal underplayed one issue that will not go away: A significant amount of content on YouTube includes copyrighted material, often lifted from broadcast TV, DVDs and CDs (for soundtracks). Brand advertisers, in the main, are unwilling to place their marketing messages alongside (or in some cases inside) stolen or controversial material. YouTube claims to be poised to deploy technology that roots out copyrighted material. But such efforts have been largely unsuccessful, marred by both false positives (where legal content is deemed to be copyrighted) and significant violations that slip through the cracks. YouTube and Google face the burden of proving to advertisers that they will be able to resolve this issue without alienating their audience.

Google’s integration strategy for YouTube is unclear at this time. The search giant says that YouTube will remain independent, but we believe that YouTube videos are likely to play a prominent role in Google Video’s search results. YouTube already has business relationships with rich-media search providers, such as Blinkx, to whom they provide a regular content feed, so Google will need to innovate aggressively if it seeks to differentiate its use of YouTube's content in its video search.

Finally, YouTube's business relationships with media companies — including Warner Music, NBC, CBS, Sony BMG and Universal Music — provide a tantalizing opportunity for Google to extend its core AdSense network into premium video content of very high value to advertisers. This may well have been the primary motivation behind this deal. Before Google and YouTube can achieve the payout, they must prove they have a cure for the copyright malady. We expect they will announce a solution soon.

Recommendations

  • Technology providers developing copyright detection and protection technology: Focus on speed-to-market and scalable integration with human-supported operations.

  • Premium content providers and advertisers: Wait for proof that Google and YouTube can truly provide a safe venue for advertisers and premium content without compromising the site’s attractiveness. Google/YouTube has not cornered the market on consumer video partners. Video Egg, Revver, vSocial and Reality Digital, among others, not only offer the same functions and services as YouTube, but also provide "white label" application service provider solutions for networks and studios that wish to retain their brand name in future online video services.

Recommended Reading

  • "Super Enablers Begin to Reshape the Media Ecosystem” — Owners of rich-media assets are turning to "super enablers" for assistance with creating, distributing and facilitating the consumption of content. By Allen Weiner and Mike McGuire

  • "Web 2.0 Reaches for Advertising” — Despite their big audiences, Web 2.0 companies aren't always a perfect match with advertising — as we discuss in our assessment of more than 80 of the most popular Web 2.0 sites. By Andrew Frank

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© 2006 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartners research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

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