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You are here: Home > Current Topics > Mind your Business > 30 Oct 2006 |
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Many people reading this article are likely to be familiar with the Web site YouTube. YouTube was started by Chad Hurley and Steven Chen in February 2005. Its growth has been rapid: 6 months after it started, it had 2.8 million users; a year later, this number had grown to 72 million. YouTube's success is an example of so-called 'social networking' - ways in which people are connected - and in this case, the connections are all based around the Internet.
The success of the business is based, as is often the case with successful businesses, on a very simple idea. Users post videos on the Internet and share these videos with users. The extraordinary range of videos that can be found on the site is part of the attraction - you can watch videos on science and technology, travel and places, sports, entertainment, music, comedy and more. Behind these main categories, however, lies a bewildering array of material, from the outrageous to the plain tedious.
YouTube might be regarded as an example of the freedom that the Internet has brought to a whole generation of users. These users now expect, or almost demand, freedom of access to information when and where they want it. Prior to the Internet, information was in the hands of the authorities - whether it be newspapers, the BBC, the government and so on. Whatever the claims about freedom of the press, the public at large only received information when, where and how the authorities deemed it appropriate. If there was a report from a journalist embedded with US troops in Iraq, for example, we only got to see what the US Army wanted us to see.
Sites such as YouTube have changed this - now soldiers, eye witnesses, indeed anyone who has access to a video camera of some description can pass on information to the general public. In very closed and strictly controlled societies such as Saudi Arabia, the use of the Internet is allowing young Saudis to have access to a freedom of expression that is unusual in that society. The use of blogs, for example, has grown significantly in the last 18 months, according to a report by the BBC.
There are also other side effects of the use of sites like YouTube. The sharing of videos across the Internet has aroused similar concerns to the situation with music file-sharing across the net. File-sharing sites like Napster and Kazaa have had a chequered history as the established music industry responded to their existence by attempting to clamp down on them and refusing to acknowledge their existence and role, rather than embracing them as a new way of distributing music.
Is anywhere now safe from the prying eyes of the video camera? Copyright: Jason Antony, from stock.xchng.
As a result of this, the move by Google to buy YouTube for $1.65 billion (£883 million) raised a few eyebrows. Part of the reason for the raised eyebrows is in understanding what sort of business model Google is going to use to generate the sort of revenues from YouTube that will justify the billion dollar-plus price tag it paid for the company. Google do have an expertise in generating revenue from advertisers. It has been made clear on the YouTube blogs that the owners of YouTube have no intention of introducing any form of subscription - "So no, you won't have to start paying for videos and YouTube won't be replaced with Google video" is the proud claim in one of the blogs on the YouTube Web site.
There do appear to be problems on the horizon, however. Google will have to grapple with the issue of copyrighted material being shared through YouTube. Prior to the acquisition, there was not much point in any major video business taking YouTube to court because it was too small. Now it is owned by Google, the attraction of going to court is that much greater.
There has been some movement on this. Google and YouTube have managed to sign deals with Universal Music, Sony BMG and CBS and in September, YouTube announced it had entered into an agreement with Warner to show music videos, interviews with top stars and so on. This may be an inspired move on the part of Google. It might also mean changes to YouTube that Hurley and Chen have little control over and such changes might make the service as fragile as Napster seems to have become. In being swallowed up by a corporate giant - albeit a relatively new corporate giant - will YouTube lose the social cachet that characterised its growth? In other words, will it still be cool?
There are a couple of issues to try and investigate related to this article. The first is the business reasons behind such a takeover and the second, the copyright issues involved in the takeover of a site like YouTube.
72 million users and rising - that is a lot of people. The user numbers are one of the reasons why Google will have been interested in buying YouTube. 72 million people represent 72 million potential customers. Turning those customers into revenue generating units will be one of the challenges facing Google and YouTube in the coming months and years.
Given the statement by YouTube that subscription is not an option, the way to monetise the site, it seems, is through advertising. Advertisers might be persuaded to place ads on the site because of the sheer number of people using the site and its potential for growth. One relatively small banner advert can reach a very large audience. The existence of a login system, which requires users to register their name, e-mail address, country, gender and date of birth provides a range of information that helps advertising agencies to match appropriate adverts to the user profile of the site.
Has Google bitten off more than it can chew with the purchase of YouTube? Some people think so. Copyright: Gary Scott, from stock.xchng.
Google will use its expertise in generating advertising as the means of creating revenues for the site. The amount of money needed to make this a realistic investment is quite substantial. Google, however, is no stranger to the task: it generated revenues of $1.578 billion in the third quarter of 2005 alone - not far off the amount it paid for YouTube. Google is able to generate such huge revenues because of the amount of traffic passing through the site every day. It has a growing market share in the search engine market - around 37% in 2005.
A potential problem with this type of business plan is the fact that some advertisers might be concerned at the type of material that is posted onto YouTube. By its very nature, YouTube has an eclectic selection of material, although the company does monitor the videos that come into the site for uploading and there is a flagging system to try to ensure that material uploaded does not breach the terms of use that YouTube has in place. This means that videos of nudity, graphic violence and hate are not acceptable on YouTube but there is material that is adult in nature. YouTube points out that it is not a site designed for children under 13.
Many corporations are now increasingly nervous about where their names are linked to; just having an advert in the wrong place at the wrong time might not be what large corporations want. However, if Google attempt to modify the way YouTube works to make it more acceptable to advertisers then it just might damage the whole concept. Sites like YouTube, Napster, Grokster and MySpace were all incredible successes initially because they were free from authority and almost outside the grasp of the authorities. As soon as they are drawn into the corporate commercial world, they lose a certain amount of street cred; yes, they still exist, but they are not the same and have a different ethos than before. Google will have to manage the monetising of YouTube carefully, therefore, if the site is to continue to grow and become a revenue-generating arm of Google.
Many people have pointed out that Google might be taking on a legal nightmare in buying YouTube. This is primarily because of the amount of illegal video material on YouTube. By illegal is meant the fact that those who upload and share a video might not be the copyright owners. As such they are breaching copyright laws and YouTube might be laying themselves open to litigation.
Up until now, YouTube has been protected to an extent from being pursued in the courts for a couple of reasons. One has been the fact that it simply has not made any money to be worth pursuing. The second is that it has been able to shield itself through a law in the United States called the Digital Millennium Copyright Act (DCMA), 1998. Section 512 of this Act provides what is called a 'safe harbour' against copyright infringement committed by others in its name.
Here is an example of how it works: I decide to upload a clip of a video from the recently released DVD The Da Vinci Code. Clearly, I do not own the copyright and in uploading it and sharing it with others, I have breached the copyright of the owners of the film, Sony Pictures. Section 512, though, protects a business like YouTube from prosecution, as YouTube provides sufficient access for copyright holders to check whether their material is being used and if it is found, it removes the offending material as quickly as possible. Effectively, it is me breaching copyright rather than YouTube. However, section 512 also states that a business like YouTube must not be gaining any financial reward for breaching the copyright. So, the question is, if my uploaded video for the Da Vinci Code was accompanied by an advert for life assurance for which YouTube was receiving revenue, would this invalidate the terms of section 512?
Home-shot movies are not likely to cause problems to YouTube in the new commercial world it is now operating in - more professionally produced videos or clips from news programmes and so on might well be an Achilles heel for both YouTube and Google. Has this really been thought out? Copyright: Tibor Fazakas, from stock.xchng.
The moves by both YouTube and Google to try to make deals with major providers of video in a revenue-sharing agreement might be a way of heading off some of these lawsuits. It might also signal a change in attitude by the big media corporations who largely got their fingers burnt in the whole music download saga. However, there are those analysts who believe that there are still plenty of videos on YouTube that do breach copyright, which will provide lawyers with plenty of opportunity to be able to exploit the partnership between YouTube and Google. They point to the fact that it is not just copyright owned by the big media giants that is being breached, and also the fact that the 'safe harbour' principle under the DCMA has still to have the fullest boundaries of its scope tested under law.
If Google did lose a high profile case in court, it would set a precedent for other organisations to sue Google or YouTube. Google may have to tighten up the rules under which videos can be uploaded by users; the small print might lengthen and get finer. If the whole process of uploading a video becomes a hassle then it might defeat the whole ethos of YouTube and if it does, will it attract such a large number of users as it currently does? If it does not, then will Google be able to leverage the sort of revenue it expects?
