Mark Cuban and I predicted these lawsuits even before Google acquired YouTube. It was just a matter of time. As Mark said today...Viacom can't lose. If they win the suit they get their billion dollars. It is more likely that Google will settle for big bucks before the case goes to jury. Viacom wins either way.
The hundreds of millions that Google has already paid to the other studios can be viewed as out of court settlements. Viacom wouldn't accept that amount..so they sued.
How much is a video worth? - The big problem is that a video is only worth a penny...maybe five cents to YouTube, but it is worth $10 to Viacom. The advertising economics for YouTube only support a video cost of a few pennies per stream. Viacom can sell a DVD for $10. This is why the settlement negotiations just couldn't get done.
Most of you know I was a VP at Napster back in 2000 when the RIAA was suing us. I learned a lot about "fair use", DMCA safe harbors, take down notice rules, and the enormous penalties for copyright infringment. These laws are tough and there is no wiggle room.
Forget all the rationalizations about how YouTube really helps promote the content and Google is providing a great service to help users find it. The courts will hear none of it. What matters is the law and the facts...and they don't look good for Google.
Google should have taken my advice and just done an exclusive advertising deal with YouTube. Google is all about advertising. They didn't need to acquire YouTube to accomplish their advertising objective.
I've seen this movie. I know how it ends. Everybody loses...except the lawyers.
Rich Skrenta has seen this movie too. Rich was at AOL Time Warner and built a subscription music service. It never launched because they couldn't get licenses to the music...Not even from Warner Music which was owned by AOL Time Warner. Does that give you some idea of how hard it will be for Google YouTube to get rights to video? Rich tells the sad tale on his blog.
UPDATE: Umair at BubbleGeneration thinks Viacom doesn't get it. It is all about MicroChunks and new wave marketing strategies. Here is my response to BubbleGeneration;
Viacom is not stupid or backward thinking. They understand the media business very well. They understand that if they take a couple hundred million dollars from YouTube today that they have sold their future business revenue streams.
Sorry, but Mark Cuban is right on this...and so is Viacom. Your new market theories and strategies are just that...theories.
Hey, I was a VP at Napster and fought the RIAA. I know all the arguments about how "sampling" actually improves sales and exposes content to new users who will become paying customers. I believe that is true...but it doesn't matter.
The record labels and film studios own the content and copyrights. They get to decide how their content will be distributed and exposed. They decide. Not you, not me, not Google...the copyright owner decides.
The problem is one of value. Record labels value a song at about $1.00 and film studios value a movie at about $10.00.
Advertising business models can't support that kind of cost/value. YouTube's advertising model can only support a few pennies per stream. Viacom thinks a YouTube video stream is the equivalent of a lost DVD sale, or $10.00.
Google/YouTube can't close the value gap with advertising revenues or new marketing theories.
Believe me I know the theories and have fought the fight. It doesn't work in practice or theory.