Though, Eric Schmidt, CEO of Google, has denied that $500 million were set aside for handling legal issues related with YouTube in the $ 1.65 billion buyout, parts of Cuban’s post are still believed by some bloggers. Schmidt denied Mark Cuban’s claim in an interview with John Battelle at the Web 2.0 conference (Nov 7-9, San Francisco):
In a two-part question, Battelle asked whether Google’s deal included a secret reserve for legal claims and, secondly, what progress Google was making in striking licensing deals with media companies to avoid threats of legal action.
“The former is not true,” Schmidt said in response to the question of whether “a very large sum of money was set aside to buy peace” between YouTube and big media companies. “The latter is,” the Google CEO continued. “We have visited as many media companies as we can” to reach copyright licensing deals that can insulate both YouTube and Google, he said.
However there is more to this controversy. Bloggers have reviewed other parts of the claim made by Mark Cuban and found them to carry some weight. One of them is Universal suing YouTube competitors after the YouTube buyout. Reason is explained in the contents of post by Mark Cuban:
Armed with this kitty of money Youtube approached the media companies with an open checkbook to buy peace. The media companies smelled a transaction when Youtube radically changed their initial ‘revenue sharing’ offer to one laden with cash….Since everyone was reaching into Google’s wallet, the big G wants to make sure the Youtube purchase was a wise one…Youtube’s value is predicated on it’s traffic and market leadership which Google needs to keep.
If they simply agreed to remove all unauthorized content and saddle the user experience with ads Youtube would quickly be a skeleton of its prior self. Users would quickly move to competing sites. The media companies had 50 million reasons to want to help. Google needed a two pronged strategy which you see unfolding now.
The first request was a simple one and that was an agreement to look the other way for the next 6 months or so while copyright infringement continues to flourish. This standstill is cloaked in language about building tools to help manage the content and track royalties, some of which is true but also G knows that every day they can operate in the shadows of copyright law is another day that Youtube can grow…
The second request was to pile some lawsuits on competitors to slow them down and lock in Youtube’s position. As Google looked at it they bought a 6 month exclusive on widespread video copyright infringement. Universal obliged and sued two capable Youtube clones Bolt and Grouper. This has several effects. First, it puts enormous pressure on all the other video sites to clamp down on the laissez-faire content posting that is prevalent.
If Google is agreeing to remove unauthorized content they want the rest of the industry doing the same thing. Secondly it shuts off the flow of venture capital investments into video firms. Without capital these firms can’t build the data centers and pay for the bandwidth required for these upside down businesses.
Schmidt’s denial does clarify Google’s “official” position on the $ 500 million legal reserve. This is believeable to the level that the GooTube deal was officially an “all stock” deal. However the other parts of Mark Cuban’s post still await Google’s clarification. We will wait and see. We are living in interesting times…