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					Google Looks
To Boost Ads
With YouTube
By KEVIN J. DELANEY
October 10, 2006; Page B1

With its $1.65 billion agreement to acquire YouTube Inc., Google Inc. may be able to
broaden its online-advertising business and boost its video offerings to meet the rapidly
changing viewing habits of consumers.

The all-stock purchase announced yesterday of closely held YouTube, a 19-month-old,
San Bruno, Calif., startup with 67 employees, highlights users' growing consumption of
video online and the booming sales of Web advertising. The hefty price tag also reflects
the interest of other media and technology companies in acquiring YouTube as a way to
jump-start their online-video efforts.

The deal -- the largest in Google's eight-year history -- marries Google's massive
collection of computers, data lines and systems for serving up online ads from hundreds
of thousands of advertisers with YouTube's leading position in playing videos for users
on the Web. It could transform Google, of Mountain View, Calif., into a bigger power
broker for the distribution of video online, following the mixed track record of its own
online-video efforts. YouTube has said that consumers view videos through its service,
ranging from homemade videos to movie clips, more than 100 million times daily.

"This is going to allow us to continue to develop features for our community and our
partners, allow us to sharpen our focus," said YouTube Chief Executive Chad Hurley in
an interview. "We'll be able to leverage the technology and resources of Google to
supercharge our efforts in those areas."

The acquisition could also boost Google's ambitions to significantly broaden its ad-
brokering activities beyond simple text ads on Web pages to larger amounts of video
advertising online. The Web-search company places ads, often targeted by specific
keywords such as "Chicago hotel," on its own and partner sites using an automated online
system and has said it intends to also broker ads in radio, print media and television.

"We believe the combination of Google and YouTube will create this very new and
interesting global media platform for users, content providers and advertisers all around
the world," said Google CEO Eric Schmidt during a conference call announcing the deal.

The sale is a huge windfall for YouTube, which Mr. Hurley, 29, founded in Feb. 2005 in
his garage along with chief technology officer Steve Chen, 28, and another former
colleague from eBay Inc.'s PayPal electronic-payment unit. Mr. Hurley had said in a June
interview that an initial public offering in the future was a possibility. But the offer from
Google was attractive enough to lead YouTube to abandon that interest. (See the founders
on YouTube8.)
Some analysts raised questions about YouTube's price tag. Critics said Google could be
exposing itself to liability for copyright violations, since videos posted by users without
permission of content owners are available through YouTube's site. The start-up already
faces one lawsuit related to this issue. YouTube has been racing to sign deals with media
and entertainment companies to license their content and head off any additional
litigation, generally agreeing to share online ad revenue with the content owners. "The
YouTube commitment to enforcing copyrights is very consistent with Google's," said
David Drummond, Google's senior vice president of corporate development. Mr.
Drummond said the two companies remove any infringing content when notified by a
copyright holder.

In a prelude to the acquisition announcement, YouTube early Monday announced
agreements with Vivendi SA's Universal Music Group and Sony Corp. and Bertelsmann
AG joint venture Sony BMG to make their music videos available through YouTube and
to allow consumers to use music from the two companies as soundtracks for their own
videos on YouTube. The video site also signed a content and ad-revenue-sharing
agreement with CBS Corp. related to video from CBS Television Network, Showtime
Networks Inc. and CSTV Networks Inc. Google separately announced agreements with
Warner Music Group Corp. and Sony BMG to make music videos and other content
available for free through its video service and on partner sites.

YouTube's deal with Universal Music is particularly significant since Universal Music
Chief Executive Doug Morris told investors last month that YouTube violates copyright
laws by allowing users to post music videos and other content. Universal Music has
considered taking legal action against YouTube over that issue, say people familiar with
the matter.

Yahoo Inc., News Corp. and Microsoft Corp. were among the other companies that
expressed interest in acquiring YouTube, say people familiar with the matter. YouTube
had earlier passed on a lower offer from Google and held acquisition discussions with
Yahoo, which tendered an offer in recent weeks, say people familiar with the matter.
Yahoo's offer, valid for 24-hours, expired amid its concerns about copyright- and
revenue-related issues though talks continued after the expiration, one of the people says.

A Microsoft spokeswoman said the company "evaluated acquiring this type of
technology several months ago" but decided to build its own service, a test version of
which opened recently.

Meanwhile, Google significantly increased its offer and deal talks between the two
gathered intensity late Tuesday, when Google's Mr. Drummond and YouTube Chief
Financial Officer Gideon Yu drafted a term sheet, a person familiar with the matter says.
In parallel, the two companies worked to complete content and ad-revenue-sharing
partnerships with the major music companies and CBS Corp. that were announced
yesterday morning.
News Corp. sniffed around YouTube as recently as last week, but never made a firm
offer because the start-up said it was not for sale, say people familiar with the matter. On
Friday, when the news of the Google negotiations surfaced, News Corp. sent a letter to
YouTube asking for an opportunity to participate in the sale process, according to the
familiar people. YouTube didn't respond, these people said. Behind the scenes, Google's
deal to purchase YouTube is threatening to create a rift between Google and News Corp.,
which jointly made headlines in August with an ad-brokering deal under which Google
guaranteed revenue of $900 million over three and a half years to News Corp. for its
MySpace social-networking service and other sites.

Over the weekend, News Corp. executives expressed their displeasure with the deal to
Google and threatened to remove any links to YouTube videos placed by users on their
MySpace blog pages, according to a person close to the situation. Google's Mr. Schmidt
and Advertising Sales Vice President Tim Armstrong are scheduled to meet this week in
Los Angeles with News Corp. Chairman Rupert Murdoch, President Peter Chernin and
Ross Levinsohn, head of its Fox Interactive Media online unit, to discuss the matter.

News Corp. earlier this year held discussions with NBC Universal and Viacom about
jointly building a YouTube rival, according to people familiar with the situation. The
three media companies discussed putting their television videos on a new site, but
ultimately the talks foundered, these people say. This month, News Corp. announced it
would put video clips from its Fox television shows up on MySpace.

YouTube's sale could represent a significant financial gain for venture capital firm
Sequoia Capital, which has provided funding to the start-up. Sequoia holds roughly 30%
of YouTube, says a person familiar with the matter. Under the sale agreement, YouTube
will retain some independence, keeping its brand, offices and management. Google will
also continue to operate its separate Google Video service.

-- Julia Angwin and Matthew Karnitschnig contributed to this article

				
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