This post could be entirely fictitious, but it’s absolutely fascinating anyway. It’s a fantastic scenario that would explain how Google rationalized the $1.65 purchase of YouTube. The source? Mark Cuban’s anonymous but trusted source — who first posted this theory on the Pho List.

Here’s how the saucy story goes:

1. Google actually paid $1.15 billion to YouTube, and maintained $500 million to handle the ensuing copyright-infringement battles.
2. If you’re a big media company (network or studio) trying to sue YouTube, you have two options: 1) Take a $50 million check and leave Google alone for 6 months… maybe sue some of the other guys, or 2) fight a long legal battle.
3. The $50 million check wouldn’t be a payment, of course. That might be illegal. Instead the payment has to be engineered as ANYTHING but a licensing arrangement. Otherwise the media houses would have to (gasp) share the proceeds with creators.
4. The transaction, instead, is YouTube granting $50 million in stock to the media house, which Google promptly buys.
5. Now Google has the “monkey off its back” for long enough to figure out how to make YouTube sustainable. And gets to enjoy watching the big media players sue its competitors… which, in turn, makes them worse and blemished to potential buyers.

 Here are some of the problems I’m having with the story

• Secrets like this are impossible to keep.
• A competitor can claim colusion, and copyright owners will legitimately argue they’ve been shut from a retroactive royalty mayment.
• This is like feeding a dog. He’ll be back minutes later begging for more.
• Someone small is going to be turned away at the $50 million handout window, and they’re going to be pissed and determined.

Said one comment on the blog… Eliot Spitzer would be all over this like a fat kid on a smarty.

An anonymous source sent me this confidential “YouTube Research by Google” video that was meant for internal use only by Google.

I think it’s worth the legal risk of posting, because it gives us insights into what due diligence Google conducted before buying YouTube. Google’s board apparently commissioned ethnographic research of the YouTube community — research done by Jean-Claude Claris, MBA, Ph.D.

The research was conducted by observing the behavior of 25 U.S.-based YouTube users in early September. This video is dated Sept. 31, 2006, and Claris recommends a purchase price of $1.6 billion.

Please Digg this story by clicking here.

Here’s a YouTube video from Ken Goldstein in which he announces Google’s decision to provide video creators 5 cents worth of stock for every video viewed before the October sale of YouTube by Google. It takes the fun out of it to know it’s a hoax, but you may want to view it anyway. And know that it fooled enough people that he felt like he needed a disclaimer on the description.

Yesterday’s morning rant about Google/Yahoo seems to have touched on at least one point that is shared by smarter people than me. Google’s gobbling of YouTube was more defensive than offensive. Says Benjamin Schacterof UBS Investment Research in this Dow Jones article by Carmen Fleetwood (thanks Jim for sending).

It’s classic blocking. Without inventory, advertisers can not spend money, without advertisers, publishers will not become partners, without partners, content providers will not provide content.

Also- it seems that YouTube is alleging it makes 100,000 million in annual sales (which I highly doubt). So that would put the acquisition at 16.5 times earning instead of the 1000 multiple I claimed. Again- you have to believe that YouTube earns 100 million to accept that multiple.

Parenthetically I noticed that there are a lot of positive comments that praise Chad and Steve in their “I Just Can’t Wait to Be King” video. I told my daughter about the acquisition and my video rant, and she responded (mind you she’s 8):

Why don’t you be nice to them so they give you some of their money?

I laughed from when I started putting my socks on until I was completely dressed. When I got home last night she told me she heard the news, and thought they said Google bought CubeBreak.

Too late. I’m sure every possible YouTube and Google variation has been squatted.

Google proposed to YouTube. It reminds me of The Crying Game, only we haven’t gotten to that part in the movie when the camera tilts down to reveal the “secret plot.”

Perhaps the most fascinating thing ahead will be to watch what happens to Google Video as the merger works its ways through the legal stages.

Hey- I wonder if the rules apply like when you’re buying a house. If the seller doesn’t disclose that the house is burried on a toxic Indian graveyard, the buyer can still back out. What happens when the Google folks look at the videos and realize 78.74 percent are not owned by YouTube or the people submitting them?

P.S. Dear Google- www.CubeBreak.com is for sale for one millionth of the price, and none of the content is stolen.

Google is considering, according to Wall Street Journal sources, buying YouTube. No, seriously. Click here to read more.

They say a boat owner’s two happiest days are when they buy a boat and sell it.

Incidentally, note that Nielsen (click chart above) and Hitwise (see below) are both putting YouTube as the clear market leader of online video despite comScore’s assertion that MySpace had topped them. So maybe that “Burst YouTube’s Bubble” contest isn’t over.

• Google Inc. is in talks to acquire popular video-sharing site YouTube Inc. for roughly $1.6 billion, according to a person familiar with the matter. The discussions are still at a sensitive stage and could well break off, this person says.

• YouTube commanded 46% of visits to U.S. online video sites in August, according to market research firm Hitwise. That compared to a 23% share for the video activities of News Corp.’s MySpace social-networking site, and 10% for Google Video.

• Analysts said a Google acquisition of YouTube would make sense for both companies. (WVFF note: WTF!?).

• “It’s damn cheap for a company that already has a global presence,” said Trip Chowdhry, an analyst with the San Francisco-based Global Equities Research. “YouTube’s brand identity is no less than Google’s and is no less than Coke’s.”

I had to stop reading when I read Chowdhry’s quote. But you can read the rest by clicking “more” below. Continue reading Google Runs Out of Things to Do With Money →