Today is Part 2 of a Challenge Dividend analysis on the stunning $1.65 billion purchase of YouTube by Google. My second entry in this series covers a piece of news that was quickly overwhelmed by the merger coverage, but has even bigger potential for revolution.
A day before its merger announcement, both Google and YouTube independently cut deals with major recording studios that would allow for consumer-generated videos to use copyrighted songs without permission. Under the terms of the deal, GoogTube will identify when copyrighted material is used on consumer-submitted videos, and will send music labels a cut of the advertising dollars that are generated. This is historic in that it opens up the market of home-generated content, while creating new business models for the companies involved. The consumer gets 15 seconds of fame without legal threats; music labels get a percentage of revenue from a growing market that it saw zero from before; and GoogTube gets to pursue marketers dollars in this space without threat of lawsuits.
The studios involved include Universal Music Group, Sony BMG, CBS, and Warner Music Group. For years, the studios have been aggressively fighting the tide of online material that uses its artists' work without permission. They have issued thousands of threats and pushed Google and YouTube to remove thousands of videos from their site.
But the tide has been rising too high and too fast for music companies. Perhaps they learned the hard way from Napster that suing your consumers has a way of backfiring, and that this online music thing is quickly replacing CDs and traditional albums. This time, they felt the pressure to serve consumers and the opportunity to make a buck.
Meanwhile, YouTube responded with this innovative solution because of the pressure from legal action and its desire to have a legitimate business model. These two pressures literally put a billion dollars in the balance, as analysts suggested YouTube was too tainted by legal pressure to be purchased. It's no small conincidence that Google swooped in days after the deals.
I'm excited and quite amazed that these forces all combined to make this revenue-sharing deal happen. But I'm not surprised at the reason: Challenge leads to improvement. And everybody wins.
Comments