Viacom Smokes a Peace Pipe With YouTube, 7 Years in the Making

YouTube is clearing the skies of legal threats, while its revenue model grows up. That $1.7 billion buyout is starting to look like good business.

Mar 18, 2014 at 11:00AM

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Image source: YouTube

Viacom (NASDAQ:VIA) sued YouTube way back in 2007, when the video site was just a wee youngster. Seven years later, the lawsuit has been settled and YouTube parent Google (NASDAQ:GOOGL) can stop worrying about the potential impact of a negative ruling.

In a joint press release, Google and Viacom smoked a public peace pipe: "This settlement reflects the growing collaborative dialogue between our two companies on important opportunities, and we look forward to working more closely together."

Terms of the settlement were not disclosed, but Re/Code and its anonymous sources claim that no money changed hands.

The case has been a legal landmark in many ways. Viacom originally asked for a cool $1 billion in damages, based on the billions of views YouTube had amassed from Viacom-owned content. It's been a flashpoint for matters of copyright policy, privacy, and freedom of speech issues. Putting this bad boy to rest without passing it in front of the Supreme Court may be doing the legal system a disservice -- but, hey, at least Google is off the hook.

A long time coming
When Viacom launched its legal assault, YouTube was just two years old and Google had bought it for $1.7 billion only four months earlier. This battle was a formative part of YouTube's early days, forcing the company to create far-reaching copyright protection schemes.

Google has never disclosed financial results from YouTube, lumping the popular video service in with other online revenue sources like ad clicks and Android app sales. With the Viacom matter buried and soon to be forgotten, Google might have more freedom to share YouTube's financial results. Reporting these numbers under the cloud of pending big-ticket litigation could have torpedoed some of YouTube's legal arguments, which may have helped to keep YouTube's financial figures in the dark.

Of course, the tech industry in general and Google in particular are bending over backward to keep their proprietary data under wraps. I'm not exactly holding my breath until Google starts reporting YouTube results separately, but I'm still hoping for increased clarity.

The site was seen as a money sink for years, with the added weight of Viacom's litigation on top. YouTube was bought with nearly no revenue on the table, and $1.7 billion was about half of Google's cash reserves at the time. Then CEO Eric Schmidt was unsure, but chief legal officer David Drummond promised that the company would be happy buying YouTube.

But now, Google's management calls YouTube a "strategic growth opportunity" on par with Android and Chrome. They also call it "part of our core advertising business," with third-party traffic insights to match. Media measurement giant Nielsen now measures YouTube traffic, much the same way it measures TV audiences. That's a requirement for getting major advertisers to trust YouTube's traffic data and to shovel advertising budgets onto the platform. This thing is getting serious.

So, at long last, YouTube is clearly earning its keep. Waving off Viacom's legal threats only underscores how successful that much-maligned $1.7 billion acquisition has been for Google. David Drummond's advice looks better than ever.

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Anders Bylund owns shares of Google. The Motley Fool recommends and owns shares of Google. Try any of our Foolish newsletter services free for 30 days.

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