Conflicted or Rich or Both? Inside Dope on $1.6B YouTube Deal

BlogMaverick Mark Cuban has some purported inside information on Google's $1.6 billion takeover of YouTube. It shows the complexity of media dealings in the new era and the, uhm, short-term pragmatism of major media. After all, a good quarter in the bag may tend to sway executive thinking.

The information, cribbed from an online list, is based on "talks with people involved" and some informed speculation. Some of the minor details have been confirmed and published elsewhere, including the Wall Street Journal and the New York Times. But Cuban's source draws a more comprehensive picture of the developments. This is not Washington Post-style triple-verified, although Cuban's source says it fits with his industry experience in media negotiations and court battles. Highlights include:

• During takeover negotiations, YouTube offered a revenue-sharing agreement to copyright owners, including music and film companies, to mitigate the risk of infringement lawsuits;
• Media companies rejected such proposals because "Youtube wasn't making any money and was fuzzy about how they would generate revenue in the future." Also revenue sharing deals would not make up for perceived past violations.
• As part of the fix, nearly $500M of the $1.6B purchase price has been set aside in escrow to pay potential settlements and to support future legal costs by Google.
• To put a  better cap on the future liabilities from settlements, Google negotiated directly with a handful of major media companies, armed with "an open checkbook to buy peace," including a most-favored nation clause that any media company was guaranteed to improve their deal to equal status if some other media company negotiated a better deal.
• Cuban's source estimated the major media companies scored "about $50 million each" just in time to be included in third-quarter earnings reports, due out soon.
• The media companies took the payment in the form of an equity stake in YouTube in order to avoid having to pay out any license fees to artists and film makers. "A few savvy agents might complain about receiving nothing and get a token amount, but most will be unaware of what transpired."
• The media companies, now part owners, agreed to "look the other way" on copyright violations for six months while some copyright protection software is cobbled together. They also agreed to launch lawsuits on YouTube immitators such as Bolt and Grouper, effectively giving YouTube a "six-month exclusive on widespread video copyright infringement," while also kneecapping competitors.

Cuban doesn't specifically identify his source, and that person includes this caveat: "I can't say this has been fact checked. It hasn't. I cant say its 100% accurate, I don't know. But it rings true, and as I said, I trust the source."

**Late Addition/Other Views**

Financial Times reports that Google is in a new "frantic round of negotiations" with CBS, Viacom, Time Warner and other media companies over copyrights, in one case offering $100M for a two-year term. “The fact is that in three to six months every media company’s going to decide that their stuff gets taken down or that they get paid for it,” a media executive said, likening the negotiations to “a big chessboard." If negotiations collapse, YouTube could end up as a $1.6B-version of Napster, ignored, unloved and overvalued.

Nicholas Carr at RoughType looks at the risks for both sides: Google risks over-paying for rights to preserve the YouTube deal. Media companies risk shutting themselves out of another new sector, the way they lost to Apple's iTunes in the downloadable music business. A deal will likely be settled because the risks of failure "are greater than the risks of success."

TechDirt says writers and actors want their cut of the YouTube deals.

Wall Street Journal describes YouTube's complex web of negotiations over a rap video.

The Columbia Journalism Review says the YouTube deal is doomed to failure, like so many dotcom mergers a few years ago.

YouTube deal was a perfect match for Google, says Jason Calacanis, CEO of Weblogs Inc.