Greg Kostello is the CEO of a popular video site, vMix. Over the years, he has been involved in a variety of top online companies, such as Netscape and MP3.com.
I think that we are probably still at the rumor stage but I would suggest that anyone who thinks about buying YouTube do so with open eyes. A number of issues to consider:
- Deep pockets make great targets -- YouTube may have avoided major lawsuits so far because they have limited funds. Any acquirer with large amounts of cash will make it a great target. While it's true that YouTube has struck deals with a few media companies, notably NBC and Warner Music, they would need to make deals with virtually all of them to avoid major copyright lawsuits. Each copyright holder may want their pound of flesh and the DMCA gives them the ability to demand it.
Google could structure the deal so that pre-acquisition copyright liability falls upon the current owners of YouTube. This means that the current owners will still be on the hook if and when lawsuits happen. This will likely be a sticking point in getting the deal done.
- The acquirer will need strong media relationships -- assuming that the acquirer can stomach the potential legal liability they will still need to work out with licenses. Much of the popular content on YouTube is unlicensed, copyrighted content. In order for YouTube to stay popular they are going to either have to get lots of licenses or take down the content. And then there will be the issue of payments for previous infractions as Universal Music has hinted at. Of course, Google has the money to pay very large license fees but they will also need to figure out a business model that will take into account a cost model that involves these licenses on top of the very large serving costs. Google has a great serving infrastructure, so that is unlikely to factor as heavily into the equation.
- Keeping YouTube cool post-acquisition - It is unlikely that the buyer will be able to license all content. Limited licenses mean that the acquired YouTube will have limited content. Imagine that you can get NBC TV trailers but no Colbert Report. Limited content will greatly diminish the value of YouTube to their audience. So the acquirer will need to determine the value of this smaller, less enthusiastic audience.
Do you expect a lot of deals in this space?
I do. Online growth of media consumption has exploded over the last year and traditional media companies are looking to tap into that growth. While online newspapers and magazines are growing as well, they want to tap into this new form of media.
UGC (user generated content) sites like vMix engage the "participation generation". This generation doesn't just passively consume content. They actively seek it or create their own. Once they find or create content they blog about it, comment on it, send it or share it on their favorite online community.
This generation also looks to control the consumption of the content. They choose what they want to watch, when they want to watch it and how they want to watch it. Sites like vMix allow the user the ability to create and share playlists or to simply passively consume content in a channel environment. And it's not just about consuming content, it is also about creating content. At vMix we give the user the ability to mix in licensed content into new original creations.
Media companies, big and small, have the content that this generation wants. They are seeking partners that respect their copyrights and have created the communities and technology that make it possible to consume and participate with this content.
Internet offerings that are able to tap into people's creative natures and offer them new and interesting ways of working with content will be highly attractive to companies that want to access and tap into this online generation. And companies that manage copyright issues and can still address user needs will make tempting targets for both traditional and new media companies.
What is the importance of online video?
Up until very recently creating and distributing video to a large audience was a very expensive and difficult process.
Video is the most powerful medium for communicating a message. The popularity of TV and Film are a testament to their wide appeal. Video incorporates music, dialog, motion and images. It can deliver a message in a few short moments unlike any other medium. This is not new news. What is new is that online video is very inexpensive and easy to distribute. Tools for creating and editing content that used to cost tens of thousands of dollars are now available for a few hundred dollars. You are no longer constrained to theater, TV or DVD to distribute your content. While these distribution channels will continue to exist, the Internet means that you can reach a new audience in ways that would have been nearly impossible in the past.
Online video as a tool is still in its infancy. And yet, we are already seeing young filmmakers create their own music videos, comedy sketches, sports reels, original animation and social commentary. They are reaching audiences that would have been simply unavailable in the past. Besides entertainment, we will see new uses in commerce, education and marketing. The web transformed how we consumed text-based content, like magazines and newspapers, and now the web is again revolutionizing how we consume rich media. Of course, the web is much more than online magazines - it is new user centric tools in the form of blogs, online tools and applications and whole interactive communities. Online and interactive video will take new, as yet undefined shape, on the Internet. vMix believes it is championing that new vision where the publisher is in the ultimate control of their content and is using the vMix platform in novel and creative ways.
How is your business doing?
Great, thank you for asking. Our respect for copyright has helped us attract the "who's who" of media companies who have now placed their content of vMix. We have content from Fox, Warner Brothers, MGM, Discovery Channel and Sony attracting original content from programs like The Tyra Show, Project Runway, Whose Line is it Anyway, Meerkat Manner and of one of my personal favorites, Borat. Not only are we attracting some very popular mainstream content, we have some amazingly great content from groups like Funimation, Ruffnation, Happy Tree Friends, Trustkill, Synthesis and hundreds of independent artists.
People often ask me how is it that we have such strong relationships with all these media companies. I think it's largely due to three things: half our company has a either a traditional media or new media background, we have actively reached out and sought permission to have content on our site and we have worked with these companies to help them promote their content. We realized early that by forming true partnerships we would attract great content to vMix.
We have been busily building tools for our creative audience including tools for creating musical slideshows, video capture that works with their computer camera to immediate capture and share right from their computer. We have a lot of tools still in the labs but the newest versions should appear as early as next week.
The combination of media and tools and an active creative community has helped us grow to over a million unique visitors a month.
Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.