Google sued by Viacom? I told you so

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.

Comments

[Chris Dodge]

Yes, we've all been expecting this for some time. It is hard to imagine how Viacom can loose.

Google looses in any outcome, if they settle - for cash or a good deal - others will want the same. If the go to trial, I think YouTube will loose, but it's possible the full damages will not be awarded. It probably won't kill Google, but the stock will take a big hit and they will have to shut down YouTube.

Also, it's hard to imagine serious Advertisers with big bucks to want to do real business with YouTube until this matter goes away.

But how long will a trial take? Don, you should know this re: Napster. Also, is there any news on the Robert Tur filing, which does seem to have less of a chance of success? I'd hate for the Tur case to set precedence.

However, I'm suprised that the filing did not seek an immediate injunction to block Viacom content from being displayed. That would have forced YouTube to start a manual screening process before content would be made public.

That in turn would eliminate any remote chance that Google would - in the future - say "we didn't know what content is on our site", since they would have to review each one.

Then - once screening is in place - any time copyrighted material is acutally made public, other content holders will have a silver bullet already in place.

I wonder who is next to sue. Fox (probably)? Time Warner? I guess CBS and NBC would have a tougher time with a lawsuit since they already have tentative dealings with YouTube in place.

On a side note, I can believe my eyes when I look at Veoh (professionally I'm very involved in this online video space). They allow users to upload high-quality and time-unlimited content. I see whole entire feature films and TV shows up there already.

Granted, Veoh doesn't have much traffic, but I can't believe someone would actually attempt something like this. I've read the Viacom is aware of this on Veoh, but it allocating it's time on YouTube right now.

I think Veoh needs to clean up it's act very quickly. Given their usage rates, it's not inconceivable that they could manually review content.

[BlogReader]

[ It is hard to imagine how Viacom can loose. ]

They can loose by "winning" the lawsuit and Google removing all their videos. Now Viacom has to spend $1B to get an operation up and running to do what YouTube did for them for free.

But hey they'll at least run the show at that point.

[Jorge]

Actually BlogReader, if Viacom wins the lawsuit, it's not just a matter of Google removing the videos. Viacom is asking for $1 Billion dollars (as damages for lost sales, etc) in addition to the removal of the videos. This doesn't include any punitive damages they are likely to receive for clear and unambiguous, wholesale violations of copyright law.

Plus, if building a YouTube cost $1B, YouTube wouldn't have existed in the first place.

The biggest problem with computer geeks is their complete and utter lack of knowledge about economics. Free content cannot be supported by advertising, especially since the value of advertising decreases with more advertising. AtomFilms couldn't survive on advertising alone with cheaply produced films or films provided by others; there is absolutely no way a real movie studio could survive making expensive films but paying for them with advertising revenue.

Finally, with art, the price is for the *experience*, not the physical copy. You pay to experience the art/movie/song/whatever. Hence, any time the art is experienced without paying, the artist loses money. If you don't want to pay the artist, then don't experience his art.

[Tom Foremski]

The entire Napster library was copyrighted content--that's not true for YouTube. If all Viacom content is removed from YouTube, there is still plenty of value remaining. It is up to the copyright holders to monitor copyright violations and take action against those violators, that means the posters and not the platform.

[DonDodge]

Tom, you are referring to "substantial non-infringing use" which is one of the defenses that was successful in the Sony Betamax case. The definition of "substantial" is open to debate, but will likely fail.

I also understand "take down notices" which is a provision under the DMCA for copyright holders to demand removal of content. We did that at Napster too, but it didn't preserve our "safe harbor" and it will not protect YouTube either.

Remember YouTube actually hosts the content on its servers. At least Napster didn't do that. We argued we didn't know what users had on their PCs. Sorry, that argument didn't hold up either, and it certainly won't for YouTube.

It is painful to remember all this stuff, but the fact is the law is on the side of Viacom and copyright holders. Next time you watch a DVD at home take a look at that blue screen about copyrights. It says $250,000 fine PER occurance. If found guilty YouTube will be paying way over $1 Billion.

[ChrisD]

@Tom,

Yes, I agree there is some limited value "pure" user-generated content.

However, it is unknown how much demand there is for this to be supported by advertisers and what the rates would be.

Remember if Viacom "wins", then the same will be for Fox, Warner, NBC, ABC, CBS. Also with all that International content (particularly Asian) that is now on all of the "most watched" lists.

Take all that away, there is some good semi-pro stuff, e.g. I love Chad Vader, but it's certainly not something to support more than a 5-10 person company, let alone have been worth $1.65B plus any settlements which come out of this.

Chad and Steve, are laughing all the way to the bank. No suprise they structured the GooTube deal so that they could sell their stock within 90 days of sale. Normally, I've seen a one-year stock lockup on acquisitions. Unbelievable!

There's going to be a lot of dirty laundry that gets revealed soon. The whole thing smells of a "ol' boys backroom deal".

[Steve Morsa]

According to this morning's L.A. Times, Viacom's actually been preparing for the possibility of this lawsuit for some months.

They hired BayTSP; which, using crawler software; reviewed 1.8 million videos for keywords such as "Jon Stewart" and "The Daily Show"...identifying the 150,000 clips--using human reviewers--which were illegal.

With the Times pointing out that the actual penalty--given the huge number of carefully recorded, time-staped, and otherwise documented infringements--could actually be, not one, but 23 billion dollars...

...sorta' reminds me of the foolish shark who jumps at the chance (such an opportunity!) to swallow those slow-moving, oh-so-tasty looking puffer fish...not realizing until it's too late that the darn thing's gone and "blown up" inside them...leaving the poor shark wondering who's going to die first...the puffer...or them.

[pwb]

I'm hoping YouTube adds a fair use argument. Most of the videos already include comments.

Fact is, YouTube is very different from Napster. Napster peddled perfect downloads if things otherwise available for sale. YouTube provides lousy quality streams of things not otherwise available for sale and free in the first place.

[Snarkston]

I comment on your view vs. Umair Haque on my blog:

http://snarkston.blogspot.com

You are right. Umair is wrong. Unique resources always win.