Media Curmudgeon

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March 15, 2007

Viacom Sues Google/YouTube

My favorite headline for the story about Viacom suing Google for unautorized use of copyrighted content was “Boob Tube Vs. YouTube” in AM New York.

The Wall Street Journal had the story as the did the New York Times,” although they weren't quite as hysterical in their coverage.

But neither AM New York, the Journal, nor the Times gave much insight into what is really behind Viacom’s law suit against Google. Here’s what’s going on: The big media companies are pissed at Google for using their content without paying for it and trying to take over selling advertising in that content.

Google wants to muscle in on the media business, as its CEO, Eric Schmidt, indicated in a recent Bear Stearns media conference, as I covered in my March 9, blog and the Wall Street Journal covered with a Saturday, March 10, front-page story headlined “Google Gains on Goal of Controlling And Targeting TV Commercials.”

Even though the copyright infringement suit by Viacom has been in the works for months, I’ll bet a free ad on my blog that when Sumner Redstone, Viacom’s and CBS’s chairman, read “Controlling…TV commercials,” he went ballistic and told his lawyers to hurry up and file the suit. Not only is Redstone notoriously litigious, he’s brilliant and can see that Google wants to take over the selling of television advertising inventory its way, using an online auction model, and not by using the traditional face-to-face negotiating model used by the television networks (cable and terrestrial).

In a presentation to a Bear-Stearns investor panel on March 6, Google’s CEO Eric Schmidt hammered home the point that Google’s ads were highly targeted and their results were measurable, whereas TV and radio advertising was “completely untargeted” and “highly inefficient.” Those are fighting words to TV and radio people and Schmidt should have known that.

Larry Page and Sergey Brin designed a superb search technology with very smart algorithms that revolutionized search and the way people use the Internet. They didn’t know what businesses they were in; they had no idea how they were going to make money until an early employee, Omid Kordestani, the head of business development, figured out how to sell text ads next to search results. The rest is history.

But the Googlers, Schmidt, Page, and Brin, got richer than Midas and they must have figured, “We’re so rich, we must be smart about everything. Therefore, we know how to do media and entertainment better.”

When the Googlers paid a whopping $1.68 billion for YouTube, they must have thought that they could figure out how to make money on a website that, like the early Google, had great technology but no idea how to make money. YouTube’s business plan was “If we build it, they will come.” “They” did come by the tens of millions, but the money didn’t follow. So, Google paid for traffic, not revenue. It would figure that part out.

But YouTube users were posting a lot of main-stream-media (MSM) copyrighted content that YouTube was not paying copyrights fees for. Like most Internet geeks, Google’s culture was that “Information wants to be free,” and thought it was in the information delivery business.

The television and radio industries know what business they are in—the advertising delivery business—and that the way to make more money is to pay for and distribute popular content that will deliver advertising. The more popular the content, the higher the advertising revenue.

Google and YouTube were not paying for a lot of the MSM content that they were distributing, and then they wanted to “control” the MSM’s advertising associated with that free content. Google made deals to sell some newspaper advertising and bought a company that sold radio advertising and is trying to get into that business, not too successfully so far. It is now trying to find a way to sell TV advertising. I think that was the last straw for Redstone.

If Google wants to get into the advertising delivery and selling business, it will get farther with honey than with arrogance and negativity, and it better not mess with Redstone, Rupert Murdoch, Dick Parsons, or Bob Iger. These media guys know what business they are in, understand the business, and won’t let the Googlers join their poker game without a significant buy-in. It looks like the wily old pro Redstone is setting the buy-in at $1 billion (which is probably negotiable). We’ll see if Google wants to play and, if so, how good it is. So far Google has come across as a rich, arrogant, over-confident, whiny rookie.

Posted by Charles Warner at March 15, 2007 09:54 PM

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