Declare war on Google?

# Declaring War on Google?

# A lawsuit seen as the official start of a battle between Google and traditional media giants is, in fact, an inevitable part of their ongoing rivalry.

Since its inception, Google (Nasdaq: GOOG) has had a strained relationship with traditional media conglomerates. Its Library Project and Google News have faced numerous lawsuits in Europe, and now back in the United States, Google is embroiled in another major legal battle—this time due to YouTube, the video-sharing website it acquired just five months ago.

On March 13th, media giant Viacom (NYSE: VIA) filed a lawsuit against Google and YouTube in the New York District Court. Viacom claims that YouTube contains a large amount of infringing content and is seeking $1 billion in damages from Google.

An article on The Economist's website views this lawsuit as the official start of hostilities between Google and traditional media giants. Google must use this opportunity to clearly communicate its stance and principles to the outside world; it can no longer continue to evade these issues. For traditional media giants, it's also time to hold Google accountable and secure the maximum possible revenue share before YouTube fully matures.

YouTube is not Napster

For both YouTube and Google, this lawsuit seemed almost inevitable—during the acquisition process, copyright issues almost caused the deal to fall through.

After examples like Napster, Grokster, and Kazaa—P2P websites that were brought down by copyright lawsuits—some analysts expressed pessimism about YouTube’s future. More astute analysts linked this lawsuit to Michael Moritz, a partner at Sequoia Capital, stepping down from Google's board, suggesting he resigned out of responsibility for the impending litigation.

As an investor in YouTube, he played a crucial role in convincing Google to spend $1.75 billion to acquire YouTube. "It was because of him that Google got into so much trouble," said Global Equities analyst Chrip Chowdhry. "Google should return the money spent on acquiring YouTube to investors."

Will YouTube become another Napster? That depends on the ruling by the New York Superior Court, which hinges on the interpretation of the U.S. Digital Millennium Copyright Act (DMCA) of 1998. This landmark law includes a specific provision allowing websites to remove content upon receiving a copyright infringement complaint.

YouTube acted accordingly, removing approximately 100,000 Viacom videos about a month after Viacom raised objections. However, this does not absolve YouTube entirely because the DMCA provision only applies if the website did not financially benefit from the infringing content.

Viacom argues that YouTube attracted traffic through pirated content and sold advertisements based on this model, establishing a clear business strategy. Therefore, YouTube should be held liable for copyright infringement. News Corp spokesperson Carl Folta stated that this exemption only applies when a website is unaware of infringing material on its platform, but clearly, Google isn’t. Estimates suggest YouTube generated $15 million in revenue in 2006.

In Viacom’s statement, it was mentioned that over 160,000 Viacom videos existed on YouTube and had been viewed more than 1.5 billion times. Viacom CEO Philippe Dauman remarked, "We have been very accommodating on this issue. We cannot continue to allow YouTube and Google to profit from our content without any commercial agreement."

Google's lawyer Brown considers the DMCA to be a "forward-looking" law, enabling various innovative applications. However, Google Vice President David Eun insists that Google hasn't made a cent from Viacom's videos and expresses hope for reaching a licensing agreement. "They always focus on how much money they can make in the short term, while we are more concerned about innovation," he complained.

YouTube CEO Chad Hurley said they are developing their own content filtering technology. However, Viacom believes that YouTube’s current filtering technology is already sufficient to filter out unwanted content. Carl Folta argued that YouTube's filtering system only protects companies that have partnered with YouTube, such as Warner Music.

Most analysts remain optimistic about YouTube's future. Google's market capitalization of over $130 billion is unlikely to be shaken by a $1 billion lawsuit. In terms of the case itself, Google is not entirely passive.

"When we went to YouTube, we saw it as a platform for individuals," said Gregory Rutchik, founding attorney of San Francisco's ArtsTechnology Law Group. He believes that Viacom's lawsuit differs from those filed by the Recording Industry Association of America against P2P sites, as Viacom didn't demand YouTube's closure but sought compensation instead.

Almost all mainstream media view Viacom's lawsuit as a negotiation tactic to secure a better price. "Before the gun fires, no one will voluntarily pay or take action," Rutchik analyzed. "A lawsuit will accelerate this process."

Who needs whom more?

Renowned analyst Henry Blodget pointed out in his analysis that, actually, YouTube doesn't need NBC or Viacom.

This was confirmed by Google's spokesperson, who noted that YouTube's traffic remained unaffected after removing around 100,000 Viacom videos, and it even became more popular. Market research data shows that YouTube's traffic increased by 14% in the last two weeks, proving that YouTube's content mainly comes from UGC (User Generated Content).

"Now, Viacom and NBC may claim they don't rely on YouTube, but in a year or two, when other content companies have established channels on YouTube, the stubborn traditional media groups will have to bow to YouTube," Blodget analyzed.

Currently, over 20 media content companies, including BBC, have reached licensing agreements with Google. Google Chairman and CEO Eric Schmidt revealed that Google will complete some big deals, though not immediately. Rumors suggest that after successfully acquiring YouTube, Google has raised its licensing fees to hundreds of millions of dollars.

For media companies, an important lesson lies in the aftermath of shutting down Napster, Kazaa, and other music-sharing sites. Illegal downloads continued on a massive scale. Some users stopped downloading free music illegally, but not because of these lawsuits—it was because Apple's iTunes provided a convenient, legal, and affordable way to buy music.

If Viacom wants to achieve this, it must improve its own websites like MTV.com and ComedyCentral.com. But currently, Viacom lacks the ability to make its sites as popular as YouTube.

When user habits have formed and new technologies offer better choices, the best option for media companies to protect and expand their interests is to adapt to these needs, quickly integrate into this new trend, and seek a share of the profits rather than trying to eliminate this trend through lawsuits. The development processes of cable TV and internet portals all prove this point, something Viacom's boss, Sumner Redstone, should understand well.

Redstone doesn't want to destroy YouTube as quickly as the Recording Industry Association of America does. In fact, Redstone isn't hostile towards internet innovators; instead, he has significant ambitions in this area. Reports suggest he participated in the bidding for MySpace and YouTube.

CBS (Nyse: CBS), another company controlled by Redstone, took a completely different stance from Viacom. Recently, it signed an agreement with YouTube to promote NCAA college basketball games on its site. This might reflect Redstone's art of bargaining.

Murdoch's presence

Not only Redstone wants to take advantage of the situation; another media giant, Rupert Murdoch, also sees great potential in internet advertising, and his tactics seem more seasoned.

On March 23rd, Murdoch's News Corporation (Nyse: NWX) and General Electric's (Nyse: GE) NBCUniversal announced plans to jointly launch a video website this summer targeting YouTube. News Corp COO Peter Chernin described this partnership as a move that would "change the game."

"We're very excited about the potential of this alliance, and we're looking for other content providers and distribution channels to collaborate with," Chernin said. Both companies declared they would invest substantial marketing and development funds for the new site's launch.

News Corp and NBC stated their goal wasn't merely to create a video portal; they hoped to promote their programs through News Corp's MySpace, Yahoo!, AOL, and MSN. They would also seek other promotional channels. This service would include popular TV series like Fox's "Prison Break," "24," "The Simpsons," and NBC's "Tonight Show," as well as blockbuster movies like "The Devil Wears Prada," available via on-demand streaming.

They plan to provide clips or full episodes of TV shows, along with an online community and video search functionality. The service will be free for users, with its business model entirely based on advertising. According to Forbes, the initiative has already attracted major advertisers like General Motors, Cisco, and Intel.

Murdoch's hostility doesn't stop there. Gemstar-TV Guide International Inc. (Nasdaq: GMST), a prominent provider of television guides partly owned by Murdoch, recently launched a beta version of its video search service. Previously, the company offered TV program search services, but now it aims to extend this service to internet videos.

"Everyone is asking, who will become the TV guide for network videos? We believe, why can't we do it ourselves?" said Richard Cusick, senior vice president of digital media at TV Guide. "We're taking a gamble, but we think it's a safe bet and aligns with our strategic goals." "For us, the concept of viewing services has changed," said the company's CEO, Richard Battista. "It used to be purely TV viewing guide services, but now it's a guide for all videos, and we should be the leader in this field."

TV Guide's internet video search service won't include YouTube's UGC content but will exclusively feature content from mainstream media companies like FOX and Disney. Overnight, Murdoch has created two formidable competitors for YouTube.

The example of MySpace seems to show that Murdoch's internet instincts are sharper than Redstone's, but it won't be easy for Murdoch to compete with YouTube in the online video space. Remember the NCN (New Century Network) website? In the early days of the internet, several newspaper giants joined forces to create this site to compete with new internet companies like Yahoo!, but it failed by 1998.

The gap between traditional media businesses and internet businesses is vast, and companies like Disney have paid dearly for it. After missing the optimal acquisition window, neither News Corp nor Viacom can easily compete with YouTube, a highly innovative company steeped in internet culture, relying solely on their own resources.

Murdoch has always been cautious about internet investments, making it difficult to expect significant financial commitments unless there's a great opportunity. In fact, shortly after Google announced its acquisition of YouTube, rumors surfaced about News Corp partnering with NBC to develop internet video services. This collaboration seems more like retaliation, and beyond that, Murdoch's real interest, like Redstone's, likely lies in securing more favorable content licensing contracts from Google.

It's hard to determine Murdoch's true motives for mobilizing two of his companies into the online video space based solely on draft plans. While publicly declaring competitive actions, the underlying goal may be to force opponents into unfavorable agreements—a tactic both cable TV mogul John Malone and Murdoch himself have used multiple times.