Can Google find the pot of gold?

Google's purchase of YouTube last fall seemed like a no-brainer to the search engine's execs.

Online video had exploded and YouTube, the most popular video-sharing site, was streaming more than 100 million clips a day featuring everything from pet tricks to pirated TV.

"We bought YouTube because of the traffic and because of the community," Google Chief Executive Eric Schmidt told investors at a San Francisco conference earlier this month.

The site was losing gobs of money, but that didn't bother Google. Traffic was climbing, and still is. Since the deal, YouTube's audience has grown 40 percent. According to comScore Media Metrics, YouTube's 136 million monthly visitors made up 18 percent of the global Internet audience in January.

One definition of an Internet URL is "Ubiquity first Revenue Later," Schmidt joked at the Bear, Stearns conference. But the joke could end up being on Google, which paid $1.7 billion for YouTube's URL on the bet that it could turn reruns into revenue.

Viacom, the New York-based entertainment conglomerate, recently filed a billion-dollar suit against Google for "massive copyright infringement." Then, last week, NBC and News Corp. announced a partnership in which they would distribute television shows, video clips and movies through large portals such as Yahoo!, MSN and AOL — an effort that would compete to some extent with Google.

Between lawsuits, drawn-out licensing negotiations and other developments, YouTube has become an increasingly expensive distraction for Schmidt and other top execs.

Meanwhile, YouTube is still groping for an effective business model. User-generated content may be popular, but it is not easy to make money off of. And professional content is finding audiences elsewhere on the Internet. Just before it filed the lawsuit against YouTube, Viacom announced a deal with Joost, which promises closer control of copyrighted material.

Google and YouTube have agreed to install filters that can flag copyrighted material as part of deals with several major record companies. The filters, however, haven't been turned on. This illustrates yet another challenge for Google: Will users stay around after the site goes legit?

"I think Google may have underestimated the amount of challenge all this copyright problem was going to cause," said Josh Bernoff, a vice president of Forrester Research.

Google is holding 12.5 percent of YouTube's purchase price — around $200 million — in escrow to cover legal liabilities.

If the court finds Google liable for infringement, would it be enough? Brian Pitz, an analyst with Bank of America Equity Research, calculated that advertising revenue for the 1.5 billion copies of Viacom clips streamed by YouTube would have amounted to just $30 million. But a guilty verdict could lead to other lawsuits. Already there are several copyright suits pending against Google in addition to Viacom. "Copyright damages could really start adding up," warned Randy Broberg, a copyright attorney at Allen Matkins in San Diego.

http://seattletimes.nwsource.com/html/businesstechnology/2003636086_gootube26.html